2014 (7) TMI 315 - AT - Central Excise

Denial of CENVAT Credit - Merger of companies - Held that - as on 20/02/2000 when the appellant applied for fresh registration, the High Court order approving the merger of the appellant company with Vivada had already been received and it took effect from 1st March 2000 itself. That being the position, there was no need for the stores clerk to have change the name since once the High Court approved the date of merger from that date merger said to have taken effect and therefore the credit was admissible. The stores clerk in his anxiety to ensure that appellant does not lose MODVAT credit and without proper knowledge of law has resorted to this. That being the position, I find myself in agreement with the view taken by the Commissioner(Appeals) in the impugned order that for a mistake committed by the stores clerk without proper appreciation of the legal position, the denial of entire CENVAT credit is not appropriate. Once the credit taken is held to be admissible and not denied, the question of demand of interest also would not arise and therefore the demand for interest also has to be set aside. Penalty u/s 11AC - Held that - CENVAT credit would not have been demanded and interest also would not have been demanded. The penalty under Rule 57AH read with Section 11A is imposable only when suppression of facts, omission etc. invoked and demand for CENVAT credit is confirmed. When there is no demand for CENVAT credit under the extended period by invoking Rule 57AH(2), imposition of penalty under Section 11AC may not be imposable. At this stage, it would be appropriate to take note of the fact that penalty of ₹ 10,000/- under Rule 173Q was also imposed against the appellant which is not at all challenged. That being the position, penalty under 173Q can be attributed to the manipulation of the invoice done by the store clerk and therefore, in my opinion, non-imposition of penalty of ₹ 50,000/- on the appellant by this Tribunal is correct - Penalty cannot be sustained - Decided in favour of assessee.

Summary

Issues:
- Denial of CENVAT credit due to change in company name during merger
- Imposition of penalty and interest under Section 11AC and Rule 57AH
- Tribunal's decision to set aside penalty and interest
- High Court's direction to reconsider the penalty and interest

Analysis:

The case involved M/s. Joja Chemicals Pvt. Ltd., a company manufacturing drug intermediaries, which merged with M/s. Vivada Chem Pvt. Ltd. The issue arose when the store clerk, fearing loss of MODVAT credit due to the company name change during the merger, altered invoices. This led to proceedings under Section 11A and Rule 57AH(i) of Central Excise Rules 1944, resulting in the denial of CENVAT credit, interest demand, and imposition of penalties amounting to &8377; 8,71,302 and an additional &8377; 10,000.

The Commissioner(Appeals) initially allowed the credit but confirmed the interest demand and reduced the penalty to &8377; 50,000. However, the Tribunal later set aside the interest and penalty. The High Court, upon appeal, directed the Tribunal to reconsider the penalty and interest, leading to a fresh review of the case.

The Tribunal re-evaluated the situation, noting that the store clerk's actions were due to misunderstanding and anxiety, not intentional fraud. As the credit was deemed admissible, the demand for interest was set aside. Regarding the penalty under Section 11AC and Rule 57AH, it was found that since the credit was allowed and no suppression of facts was proven, the penalty was not justifiable. The Tribunal also highlighted that the High Court's directive to consider all contentions meant that the penalty and interest demands could not be sustained.

Ultimately, the Tribunal concluded that the penalty of &8377; 50,000 and the interest demand were not warranted. The penalty of &8377; 10,000 under Rule 173Q, attributed to the invoice manipulation, was upheld. The decision was based on the legal position that penalties should be imposed only when the demand for credit is confirmed, which was not the case here. The appeal was thus disposed of accordingly, aligning with the legal principles and the High Court's directions.

(Order dictated and pronounced in open court)