2016 (6) TMI 269 - AT - Central Excise

Penalty under Section 11AC - removal of non-excisable goods on payment of duty through cenvat credit - whether there is suppression of fact, mis-declaration, fraud, collusion etc? - Held that - Appellant have debited the Cenvat Credit even though wrongly at the time of removal of non-excisable fabric, and the appellant has also paid additional equal amount in cash after issuance of show cause notice which they have not contested. On careful reading of the show cause notice, it is find that there is no specific allegation that the appellant has suppressed the fact of removal of non-excisable goods on payment of duty. The appellant shows the debit entry in their RG 23A Part-II account and also shown the quantity of fabrics removed in their RG 23A Part-II account, the same has been reflected in the ER-1 Return. Therefore, in the absence of any specific allegation in the show cause notice and the disclosure of entire fact in the statutory record does not show suppression of fact on the part of the appellant. Thus the penalty under Section 11AC/Rule 15(2) is not imposable on the appellant, however there is no doubt that the appellant have contravened the provision. Therefore the penalty under Section 11A is set aside and the demand of Cenvat Credit, interest and penalty under Rule 27 are maintained. The appeal is allowed in the above terms.

Summary

Issues:
- Transfer of Cenvat Credit balance to new factory premises
- Rejection of refund claim due to time bar
- Allegations of wrongly utilizing Cenvat Credit
- Imposition of penalties under Rule 14, Rule 15(2), and Rule 27
- Contesting penalty under Rule 15(2) of Cenvat Credit Rules

Transfer of Cenvat Credit balance to new factory premises:
The appellant, engaged in manufacturing and export, shifted their factory and applied to transfer the Cenvat Credit balance to the new premises. The application was rejected as there was no stock of inputs transferred along with the factory. Subsequently, a refund claim was rejected due to being time-barred.

Allegations of wrongly utilizing Cenvat Credit:
A show cause notice was issued alleging that the appellant wrongly utilized Cenvat Credit for clearing fabrics, leading to a demand of recovery under Rule 14. Penalties were imposed under Rule 15(2) and Rule 27. The appellant contested the penalty under Rule 15(2) stating that the show cause notice did not explicitly mention charges like suppression of fact, mis-declaration, fraud, or collusion.

Contesting penalty under Rule 15(2) of Cenvat Credit Rules:
The appellant argued that for invoking penal provisions under Section 11AC, specific charges must be mentioned in the show cause notice, citing relevant Supreme Court judgments. The appellant maintained that there was no suppression of fact on their part, as all relevant details were declared in their records.

Judgment:
The Tribunal analyzed whether the appellant was liable for penalties under Section 11AC of Central Excise Act, 1944, or Rule 15(2) of Cenvat Credit Rules, 2004. It was found that while the appellant debited the Cenvat Credit during fabric clearance, they also paid the same amount in cash post the show cause notice. The Tribunal noted that there was no specific allegation of suppression of fact in the show cause notice. Referring to Supreme Court precedent, it was held that specific ingredients for invoking penal provisions must be shown in the notice. As a result, the penalty under Section 11AC/Rule 15(2) was deemed not imposable, although the appellant had contravened provisions. The demand of Cenvat Credit, interest, and penalty under Rule 27 were upheld, while the penalty under Section 11A was set aside. The appeal was allowed accordingly.