2014 (3) TMI 790 - AT - Central Excise

CENVAT Credit - avaling Credit while availing duty drawback - Benefit of Notification No. 29/2004-C.E - Penalty under Section 11AC of the Central Excise Act, 1944 read with Rule 15 of Cenvat Credit Rules, 2004 - Held that - Credit taken in ER-I return of December 2005 for inputs received during Feb. and March 2005 is illegal for the reason that during the said period, the Appellants were required to maintain separate account of inputs used in the manufacture of dutiable products if they were to claim Cenvat credit. Further, it is also on record that the Appellants were claiming drawback and they could not have claimed drawback and Cenvat credit together. Having operated under a scheme where they had to forgo the Cenvat Credit Rules till November 2005, they are not entitled to take credit for input used in the previous period as opening balance in the return of December 2005. There is no affirmation that during 2005 they were maintaining separate accounts. Rule 15 of the Cenvat Credit Rules, 2004 does not mandate that a penalty equal of the credit regularly taken has to be imposed. The Rule prescribes that penalty not exceeding such credit amount shall be imposed. Therefore, in the facts of the case, I am of the view that penalty of Rs. 90,000/- under Rule 15 of the Cenvat Credit Rules will be sufficient to meet the ends of justice in this case - Decided partly in favour of assessee.

Issues:
1. Availing multiple exemptions and maintaining separate records for Cenvat credit.
2. Disallowance of Cenvat credit claimed as opening balance.
3. Utilization of disputed Cenvat credit for payment of duty on exported goods.
4. Imposition of penalty under Rule 15 of Cenvat Credit Rules.

Analysis:
1. The Appellants were manufacturers of Textile Made Up Articles exporting goods under various exemptions and availing Cenvat credit. Revenue raised concerns about maintaining separate records for Cenvat credit on dutiable goods. Appellants reversed an amount in their credit account but later claimed an opening balance without proper documentation. Revenue issued a Show Cause Notice disallowing this credit, leading to penalty imposition. Commissioner (Appeals) upheld the decision, prompting the Appellants to appeal to the Tribunal.

2. The Appellants argued that the disputed credit was utilized for paying duty on exported goods, and since no rebate claims were filed, there was no loss to Revenue. They contested the penalty imposed under Rule 15 of Cenvat Credit Rules as excessive. However, the Revenue contended that lack of evidence of actual export and claiming drawback raised doubts on the Appellants' assertions. The Tribunal noted the illegality of claiming credit without maintaining separate accounts and upheld the disallowance of the disputed credit. The penalty was reduced to Rs. 90,000 under Rule 15 of Cenvat Credit Rules.

3. The Tribunal found that the Appellants failed to provide sufficient evidence of actual export and rebate claims, casting doubt on their assertions of utilizing the disputed credit for duty payment on exported goods. Lack of proper documentation and failure to establish the export of goods undermined the Appellants' argument against the disallowed credit. The Tribunal emphasized the importance of maintaining separate records for Cenvat credit and complying with the rules to avoid penalties.

4. Regarding the penalty imposed, the Tribunal clarified that Rule 15 of Cenvat Credit Rules does not mandate a penalty equal to the credit amount but allows for a penalty not exceeding the credit taken. Considering the circumstances, the Tribunal reduced the penalty to Rs. 90,000, deeming it sufficient for the case. The Tribunal's decision highlighted the need for strict adherence to Cenvat credit rules and proper documentation to support claims, emphasizing compliance to avoid penalties and disputes.

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