2014 (2) TMI 213 - HC - Central Excise

Reversal of CENVAT Credit - damage of raw material - Whether the Cenvat Credit availed by the assessee ought to be reversed and whether the assessee willfully suppressed material fact with an intent to evade payment of duty so as to attract penalty - Held that - assessee did not inform the department about the alleged damage to the goods, it is only during the course of audit objection, the entire matter came to light. Before the Original Authority, the assessee was unable to produce any document to show that the inputs on which they have availed Cenvat Credit, were used for production and partly converted into seat covers i.e., work in progress. The Adjudicating Authority has recorded a factual finding that the raw materials were damaged at the stock godown and not in the factory premises of the assessee. As the assessee failed to establish that the inputs were used in the production or partly used in the production, the question of availing Cenvat Credit on those goods, which was said to have been damaged, does not arise. Therefore, as rightly held by the Original Authority, the Cenvat Credit has to be reversed by the assessee, moreso, when they were unable to produce any documents to show that those goods were used for production or partly used in the production i.e., work in progress. Even before the first Appellate Authority, the assessee were not able to produce any material to prove this fact. Therefore, the order passed by the Original Authority as confirmed by the Appellate Authority, is fully justified. Adjudicating Authority noticed that but for the audit objection, the full facts would not have come to light, the assessee did not report about their insurance claim that they availed and in such circumstances, the provision of Section 11AC of the Act read with Rule 13 of the Cenvat Credit Rules clearly stand attracted. Therefore, there is no justification on the part of the first Appellate Authority for having deleted the penalty. When the Revenue preferred appeal as against this order to the Tribunal, the Tribunal by a non-speaking order without assigning any reasons confirmed the order passed by the first Appellate Authority by merely observing that the order passed by the first Appellate Authority is reasonable and has been passed taking into account the entire circumstances of the case - When the Original Authority had clearly recorded a finding that the conduct of the assessee was with an intention to evade payment of duty, the penal provisions stand attracted and penalty is imposable. As regards the order for payment of interest, that being for the delayed payment is automatic and the assessee is liable to pay interest as applicable on the Cenvat Credit disallowed under Section 11AB of the Act read with Rule 12 of the Cenvat Credit Rules, 2002, is restored to file - Decided in favour of Revenue.

Summary

Issues:
1. Whether the Tribunal correctly dismissed the appeal regarding the imposition of penalty under Section 11AC of the Central Excise Act, 1944?
2. Whether the Cenvat Credit availed by the assessee should be reversed?
3. Whether the assessee willfully suppressed material facts to evade payment of duty justifying the penalty imposition?

Analysis:

1. The appeals by the Revenue were directed against the Tribunal's order dismissing the appeal filed by the appellant regarding the imposition of penalty under Section 11AC of the Central Excise Act, 1944. The substantial question of law was whether the Tribunal was correct in passing the order without rendering a finding on the non-applicability of the penalty.

2. The assessee, a manufacturer of Seats and Auto Interiors, availed Cenvat Credit on inputs destroyed due to heavy rain, for which they received an insurance claim. The Revenue issued a show cause notice stating that the credit claimed should be reversed as the inputs were not used in the final products. The Original Authority confirmed the disallowance of credit, penalty imposition, and interest demand. The Commissioner (Appeals) upheld the decision, except for waiving the penalty. The Tribunal dismissed the appeals as the assessee did not press their appeal regarding the duty demand.

3. The Court noted that the assessee failed to prove that the damaged inputs were used in production, leading to the reversal of Cenvat Credit. The Original Authority found the assessee's conduct intentional in evading duty payment, justifying the penalty imposition. The first Appellate Authority wrongly deleted the penalty, as the assessee did not establish the absence of willful suppression. The Tribunal confirmed this decision without providing reasons, leading the Court to allow the Revenue's appeal and reinstate the penalty along with interest payment.

In conclusion, the Court allowed the Revenue's appeal, reinstated the penalty, and upheld the interest payment. The Tribunal's decision to dismiss the appeal without proper justification was overturned, emphasizing the intentional conduct of the assessee in evading duty payment.