2013 (4) TMI 356 - AT - Central Excise

Levy of interest and penalty on Wrong availment of cenvat credit on inputs supplied by 100% EOU - the appellant had reversed the cenvat credit on 04/09/2009 when second audit checking of the documents took place and before the issuance of the Show cause notice. - first audit of the appellant took place on 17th to 19th August, 2009 and the audit party did not notice any thing wrong in availment of cenvat credit. - Held that - The Division Bench of the Tribunal in the case of Rajasthan State Warehousing Corp. (2011 (3) TMI 251 - CESTAT, NEW DELHI ) had in an identical situation held that when the demand for the extended period is not invocable, no demand for interest, imposition of penalty be sustained - In the case in hand, the law laid down by the Hon ble High Court of Karnataka and the Division Bench of the Tribunal would squarely apply as the appellant could not have been saddled with duty. The appellant has himself voluntarily paid the duty before the authority and also reversed the credit on being pointed out. This is a fit case wherein interest liability fastened on the appellant and the equivalent amount of penalty imposed under Section 11AC of the Central Excise Act, 1944 needs to be set-aside - The impugned order to the extent it challenges demand of the interest and imposition of penalty is liable to be set-aside and is set aside - The appeal is allowed to the extent as indicated herein-above.

Summary

Issues:
- Availment of excess cenvat credit from 100% EOU supplier
- Show cause notice for recovery of wrongly availed credit, interest, and penalty
- Appeal against Order in Original before First Appellate Authority
- Applicability of extended period of limitation
- Interest liability and imposition of penalty

Analysis:

The case revolves around the appellant's availing of excess cenvat credit from a 100% Export Oriented Unit (EOU) supplier, leading to a show cause notice for recovery of the wrongly availed credit, interest, and penalty. The appellant manufactures goods falling under Chapter Heading No. 39 of the Central Excise Tariff Act, 1985. The appellant had availed credit in violation of Rule-3(7) of the Cenvat Credit Rules, 2004, resulting in an excess cenvat credit amounting to Rs.1,96,329, which was later reversed. The show cause notice invoked penalty under Rule 15 of CCR, 2004, read with Section 11AC of the Central Excise Act, 1944.

The appellant, in the appeal before the First Appellate Authority, argued that the availed cenvat credit was due to a misunderstanding and that the reversal of credit was done promptly upon being pointed out. They contended that the show cause notice invoked an extended period of limitation, highlighting that the error was not identified during the first audit but only in the subsequent verification. The appellant relied on legal precedents, including a judgment from the High Court of Karnataka and a decision of the Tribunal, to support their case against the interest liability and penalty imposition.

Upon thorough consideration of the submissions, the Hon'ble Member (Judicial) found that the appellant had indeed availed excess cenvat credit, which was subsequently reversed before the issuance of the show cause notice. Notably, the first audit did not raise any objections regarding the credit availed, and the error was only discovered during a later verification. Citing the judgment of the High Court of Karnataka and a Tribunal decision, the Member concluded that the extended period of limitation could not be invoked in this scenario, leading to the setting aside of the interest liability and penalty imposed on the appellant.

The Member further emphasized that when the demand for an extended period is not sustainable, the imposition of interest and penalty cannot be upheld. Given that the appellant voluntarily paid the duty and reversed the credit upon detection of the error, the Member deemed it a fit case to set aside the interest liability and penalty imposed under Section 11AC of the Central Excise Act, 1944. Consequently, the impugned order challenging the demand for interest and penalty was set aside, and the appeal was allowed in favor of the appellant.