2015 (10) TMI 1670 - AT - Central Excise

Denial of CENVAT Credit - Penalty u/s 77 & 78 - Denial on the ground that appellant should have reversed it and transferred it under a proper invoice - Held that - Stock transfer should not have taken place when a proper invoice is not issued, appropriate action should have been taken against Mumbai unit and because of merger no action could have been initiated against Mumbai unit since it ceased to exist. Since there is no dispute that the Bangalore unit had reversed the credit while transferring the inputs, the impugned order taking a view that the credit has to be denied and demanded cannot be sustained. At the same time it has to be taken note of fact that the procedure followed by the appellant for transferring the stock of inputs just by reversal without raising a proper invoice to their Mumbai Unit was not in accordance with the law. Since the denial of credit cannot be sustained, the demand for CENVAT credit availed with interest and penalty under Section 78 on the appellant cannot be sustained. Further, penalty of ₹ 10,000/- has been imposed under Section 77 of Finance Act, 1994 for contravention of Rule 3(5) and Rule 9(1)(f) of CENVAT Credit Rules, 2004. In my opinion, this penalty is sustainable since the appellant failed to issue a proper invoice and that was required in accordance with law. - demand for CENVAT credit and interest thereon and penalty under Section 78 are set aside and penalty of ₹ 10,000 imposed under Section 77 is upheld. - Decided partly in favour of assessee.

Summary

Issues:
1. Denial of CENVAT credit for failure to transfer under a proper invoice.
2. Validity of penalty imposed under Section 77 for contravention of CENVAT Credit Rules.

Analysis:
1. The appellant, formerly known as M/s. Kalmar India Pvt. Ltd., faced allegations regarding the inadmissibility of CENVAT credit amounting to Rs. 24,83,035/- due to the lack of proper documentation for credit transfer between its Mumbai and Bangalore units. The Bangalore unit had reversed the credit upon transferring the inputs, which were originally received in Mumbai. However, the audit objection raised highlighted the absence of a document supporting the credit transfer by the Mumbai unit. Despite the merger of the appellant into a new company with centralized registration in Bangalore, proceedings were initiated against the Bangalore unit. The central issue revolved around whether the credit transfer without a proper invoice was permissible. The Tribunal noted that although the transfer without an invoice was not in accordance with the law, the denial of credit and the subsequent demand could not be upheld due to the unique circumstances of the merger and centralized registration. The Tribunal emphasized that appropriate action should have been taken against the Mumbai unit for the procedural lapse, but the merger prevented such action.

2. The Tribunal delved into the penalty imposed under Section 77 of the Finance Act, 1994, amounting to Rs. 10,000/- for contravening Rule 3(5) and Rule 9(1)(f) of the CENVAT Credit Rules, 2004. The penalty was deemed sustainable as the appellant failed to issue a proper invoice, which was a legal requirement. Despite setting aside the demand for CENVAT credit and associated interest and penalties under Section 78, the Tribunal upheld the penalty of Rs. 10,000/- under Section 77 due to the appellant's non-compliance with invoicing regulations. The judgment emphasized the importance of adhering to legal procedures, even in cases where credit denial may not be justified.

In conclusion, the Tribunal ruled in favor of the appellant regarding the denial of CENVAT credit and associated penalties but upheld the penalty imposed under Section 77 for the contravention of CENVAT Credit Rules. The judgment highlighted the significance of proper documentation and compliance with invoicing regulations in availing CENVAT credit to avoid penalties and disputes.