2013 (3) TMI 365 - HC - Central Excise

Cenvat Credit disallowed - credit had been taken by the three units of the appellant in respect of M.S. Angles, Channels, Plates, Sections, Beams, Flats etc. claimed to have been used for fabrication of plant and machinery, for manufacture of sugar - assessee contested against SCN which have been framed without verification of any records and physical verification of machineries and structures fabricated by the appellants in connection with the setting up of the new manufacturing units - Held that - The CENVAT Credit Rules in order to avail CENVAT credit, require the assessee to establish that the items in question were actually put to use for manufacture, or in relation to manufacture of final product, or the capital goods for which the assessee seeks to avail CENVAT credit. The CESTAT did not find any error in the order of the Commissioner, Meerut-I in denying the CENVAT credit as the appellant had failed to prove that the items, on which the CENVAT credit was claimed, were actually used for fabrication of capital goods used for manufacture of final product. The CESTAT observed that there is no dispute about the facts, that in fabrication of capital goods, the CENVAT credit was taken for M.S. angles, channels, plates etc. The appellant, however, neither specifically intimated the department at any point of time nor the details of these items of capital goods fabricated was declared in ER-I, returns filed by the appellant. The drawings and designs of the capital goods claimed to have been fabricated along with the plant of the material used were not produced before the Adjudicating Authority on the basis of which it could be ascertained as to how much quantity of structural steel material was used for various items of capital goods claimed to have been fabricated. The store ledgers and the store issue slips did not establish the use of structural steel items issued - the questions raised in these appeals are questions of fact, and thus no substantial questions of law arise for consideration by us in these appeals - against assessee. Penalty is to be attracted in this case as the appellants had taken CENVAT credit without satisfying the conditions set out and in violation of the CENVAT Credit Rules. Respectful agreement with the reasons given in Commissioner of Customs & Central Excise vs. M/s Majestic Auto Limited (2013 (3) TMI 338 - ALLAHABAD HIGH COURT) the quantum of the penalty equal to the duty determined as contemplated by Section 11AC is mandatory and there is no discretion in the adjudicating authority or the Tribunal to impose different amount of penalty - no error of law in the impugned orders imposing penalty - against assessee.

Issues Involved:
1. Disallowance of CENVAT credit.
2. Usage of inputs in the manufacture of capital goods.
3. Compliance with documentation and procedural requirements.
4. Imposition of penalty under Section 11AC of the Central Excise Act, 1944.

Detailed Analysis:

Disallowance of CENVAT Credit:
The appeals arose from the orders of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT), which confirmed the disallowance of CENVAT credit by the Commissioner of Central Excise, Meerut-I. The Commissioner disallowed CENVAT credit on M.S. Angles, Channels, Plates, Sections, Beams, Flats, etc., used for fabricating plant and machinery for sugar manufacture. The CESTAT upheld the disallowance, finding that the appellants failed to produce evidence regarding the usage of these items for manufacturing capital goods.

Usage of Inputs in the Manufacture of Capital Goods:
The appellants contended that these items were used in the manufacture of capital goods within the factory, which were further used for manufacturing sugar. They argued that proper records were maintained, showing receipts and consumption of each input. However, the Commissioner and CESTAT found that the appellants did not provide sufficient evidence to prove the usage of these items in manufacturing capital goods. The Tribunal noted the absence of specific details and documentation, such as drawings, designs, and store ledgers, to establish the use of structural steel items in the fabrication of capital goods.

Compliance with Documentation and Procedural Requirements:
The appellants argued that the items were covered under the definition of capital goods as per Rule 2(a)(A)(iii) of the CENVAT Credit Rules, 2004, and that they had complied with all procedural requirements. However, the Commissioner and CESTAT found that the appellants did not declare the use of these items in their ER-1 returns, nor did they provide specific details of the capital goods fabricated. The Tribunal observed that the jurisdictional Central Excise officers did not have the opportunity to verify these claims due to the lack of proper intimation and documentation.

Imposition of Penalty under Section 11AC:
The appellants argued against the imposition of penalties, stating that there was no fraud, collusion, willful misstatement, or suppression of facts. They relied on precedents such as Commissioner of Central Excise, Chandigarh vs. Pepsi Foods Limited to support their argument. However, the Court upheld the penalties, referencing the decision in Commissioner of Customs & Central Excise vs. M/s Majestic Auto Limited, which held that the quantum of penalty equal to the duty determined under Section 11AC is mandatory and not subject to discretion.

Conclusion:
The Court dismissed the appeals, finding no error of fact or law in the orders of the Commissioner and CESTAT. It held that the appellants failed to provide sufficient evidence to prove the usage of inputs in the manufacture of capital goods and did not comply with the necessary documentation and procedural requirements. The imposition of penalties was also upheld, as the conditions for invoking Section 11AC were met. The Court concluded that no substantial questions of law arose for consideration, and the appeals were dismissed in limine.

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