2009 (7) TMI 976 - AT - Central Excise

Summary

Issues involved:
The issue involves availing Cenvat credit on capital goods at a higher rate, imposition of penalty under Section 11AC of the Central Excise Act, 1944, and Rule 27 of the Central Excise Rules, 2002.

Summary:

The appellants, engaged in manufacturing HDPE/PP Bags and fabrics, mistakenly availed 100% credit on capital goods instead of 50% from April 2000 to July 2001. They reversed the credit with interest upon detection on 22-1-2002. A show cause notice in 2006 proposed penalties under Section 11AC of the Act and Rule 27 of the Rules. The original authority imposed penalties, which were upheld by the Commissioner (Appeals).

The learned Advocate argued that the mistake was rectified promptly upon detection, with no intention to evade duty, thus Section 11AC penalty is unwarranted. He also contended that producing records to auditors was done, challenging the justification for Rule 27 penalty. Legal precedents were cited to support the arguments.

The learned D.R. contended that the appellants knowingly availed excess credit, alleging suppression of facts to evade duty, citing legal precedents to support this position.

Upon review, it was found that the appellants did avail excess credit but promptly reversed it upon detection. The delay in issuing the show cause notice was noted. While contravention of Cenvat Credit Scheme was acknowledged, the absence of mens rea for evasion of duty led to the setting aside of the Section 11AC penalty. However, a penalty under Rule 27 was upheld for the contravention of law.

In conclusion, the penalty under Section 11AC was set aside, while the penalty under Rule 27 was upheld, disposing of the appeal accordingly.