2012 (11) TMI 196 - AT - Central Excise

Cenvat credit - empty chlorine cylinder - capital goods - cylinders was used for transport as well as storage tank Held that - Appellants cannot be found fault with if they entertain a bona fide belief that credit was admissible to them. Therefore extended period could not have been invoked - on limitation as well as on merits - denial of cenvat credit not justified. Penalty under Section 11AC - appellants had admitted their liability and did not contest the same before the Tribunal Held that - Appellants have paid the duty as well as the interest without dispute, I find that this is a fit case for invoking the provisions of Section 11A(2B) of Central Excise Act, 1944 - no penalty is imposable on the appellant

Summary

Issues:
1. Disallowance of cenvat credit on an empty chlorine cylinder.
2. Consideration of eligibility for cenvat credit based on the actual use of the cylinder.
3. Applicability of penalty under Section 11AC for availing cenvat credit.

Issue 1: Disallowance of cenvat credit on an empty chlorine cylinder:
The judgment involves a dispute regarding the disallowance of cenvat credit on an empty chlorine cylinder. The appellant argued that the cylinder was not only used for transportation but also as a storage tank within the factory, making it an essential accessory for production. The appellant relied on precedents where similar items were considered eligible for cenvat credit. However, the authorities contended that the cylinder was used solely for transportation based on the show cause notice. The remand order directed a reevaluation of whether the cylinder served a dual function as a storage tank and for transportation. The lower authorities focused on the date of receipt of the cylinders and did not consider the actual utilization aspect. The appellant's submission regarding the dual function of the cylinder was supported by relevant case law, indicating that credit should be admissible. The judgment highlighted the need to assess the actual use of the cylinder to determine eligibility for cenvat credit.

Issue 2: Consideration of eligibility for cenvat credit based on the actual use of the cylinder:
The judgment emphasized the importance of evaluating the actual use of the empty chlorine cylinder to determine the eligibility for cenvat credit. The remand order explicitly directed the lower authorities to verify whether the cylinder was used exclusively for transportation or if it served a dual purpose as a storage tank and for transportation. The appellant's argument that the cylinder was connected to machines in the factory and used for both transportation and storage was supported by relevant case law examples. The authorities, however, focused solely on the date of receipt of the cylinders and did not adequately consider the dual function aspect. The judgment underscored the necessity of assessing how the cylinder was utilized within the factory to ascertain the admissibility of cenvat credit.

Issue 3: Applicability of penalty under Section 11AC for availing cenvat credit:
Regarding the liability for penalty under Section 11AC for availing cenvat credit on specific items, the appellant admitted liability for two items and did not contest it. The total cenvat credit amount involved was specified. Considering the circumstances, including the appellant's compliance with duty payment and lack of dispute on the liability, the judgment concluded that no penalty should be imposed. The decision was based on factors such as the size of the appellant, the nature of items involved, and the appellant's payment of duty and interest without contest. The judgment invoked Section 11A(2B) of the Central Excise Act, 1944, to justify the non-imposition of a penalty in this case.

This detailed analysis of the judgment highlights the key issues surrounding the disallowance of cenvat credit on an empty chlorine cylinder, the importance of considering the actual use of the cylinder for eligibility assessment, and the decision on penalty under Section 11AC for availing cenvat credit.