2015 (10) TMI 771 - AT - Central Excise

Denial of CENVTA Credit - Capital goods - Held that - as per the Hon ble High Court of Karnataka in the case of CCE&ST, LTU, Bangalore Vs. Bill Forge Pvt. Ltd. 2011 (4) TMI 969 - KARNATAKA HIGH COURT wherein it was held that if credit has been inadvertently taken and stands reversed before utilization, no interest liability would arise against them. Revenue has also not given any reasons as to whether the said credit so availed and reversed was utilized - no reasons to interfere with the impugned order of the Commissioner (A) - Decided against Revenue.

Summary

Issues:
1. Incorrect credit taken on capital goods
2. Imposition of interest and penalty
3. Pre-payment of duty before show cause notice

Issue 1: Incorrect credit taken on capital goods
The case involved the respondent taking 100% credit of duty-paid on capital goods upon receipt, contrary to the requirement of taking 50% credit in the first financial year and the remaining 50% in the next financial year. Upon being notified by the Revenue, the respondent rectified the excess credit taken. The Commissioner (A) ruled in favor of the respondent, citing a previous order of the Cestat, Bangalore, which indicated that interest and penalty are not imposable when duty is paid before the issuance of a show cause notice. The Commissioner emphasized that once duty liability is discharged before the notice, the question of deliberate malafide cannot be raised.

Issue 2: Imposition of interest and penalty
The Revenue initiated proceedings against the respondent for confirmation of interest and imposition of penalty due to the incorrect credit taken on capital goods. However, the Commissioner (A) ruled in favor of the respondent, citing a decision by the Hon'ble High Court of Karnataka in a similar case. The court held that if credit is inadvertently taken and reversed before utilization, no interest liability would arise. The Revenue failed to provide reasons regarding whether the credit in question was utilized, leading to the rejection of the appeal filed by the Revenue.

Issue 3: Pre-payment of duty before show cause notice
The judgment highlighted the importance of the timing of duty payment in relation to the issuance of a show cause notice. Referring to previous decisions, including one by the Cestat, Bangalore, it was established that paying duty before the notice precludes the imposition of interest and penalty. The judgment emphasized that changes in Section 11AB resulting from amendments were also considered, but the department's stance was not accepted. The decision underscored that once duty liability is discharged before the issuance of a show cause notice, the question of deliberate malafide does not arise.

This comprehensive analysis of the judgment covers the issues of incorrect credit taken on capital goods, imposition of interest and penalty, and the significance of pre-payment of duty before the issuance of a show cause notice.