2016 (9) TMI 578 - AT - Central Excise

Recovery of interest and imposition of penalty - Rule 15 CCR r/w 11AC of the Central Excise, Act, 1944 - irregular avilment of Cenvat credit - availment of 100% credit on capital goods in the first year - Held that - it is correct that there is no determination of duty in the order passed by the adjudicating authority. This is because, though the appellants had wrongly availed 100% credit on capital goods in the same financial year, which is contrary to the provision of Cenvat Credit Rule, 2004, they would have been eligible for credit in the subsequent year. Thus, the demand raised in show cause notice is only for interest which is already paid by the appellant. When the show cause notice itself is for demand of interest only and no determination of duty, the adjudicating authority has confirmed the proposed penalty of equal amount. When there is no evidence to establish that wrong availment of credit was intentional and a determination of duty for the said act of commission or ommission on the part of appellant, the penalty imposed is not sustainable. In this case, there was no demand of duty as the appellant was eligible for 50% credit in the subsequent year. There is no fraud or suppression of facts brought out with intent to evade payment of duty. Therefore, in the absence of determination of duty, the question of penalty under section 11AC does not arise at all. - Decided partly in favour of appellant

Summary

Issues:
Challenge against penalty imposition without demand of duty in show cause notice.

Analysis:
The appellants, manufacturers of Bright Bars and Bolts, were found to have taken 100% credit on capital goods for a specific period, contrary to the Cenvat Credit Rules, 2004. A show cause notice was issued for recovery of interest and imposition of penalty. The adjudicating authority ordered recovery of interest and imposed a penalty equal to the irregularly availed credit amount. The Commissioner (Appeals) upheld the decision, leading to the current appeal.

During the hearing, the appellant challenged the penalty imposition, arguing that as there was no demand of duty in the show cause notice, the penalty was unsustainable. The appellant's counsel relied on the judgment in Ispat Industries Ltd Vs CCE, Raigad to support this argument. On the other hand, the AR contended that the penalty was justified due to the violation of credit availing conditions.

The Tribunal analyzed the case and noted that the show cause notice only demanded interest, not duty. Since the appellants were eligible for credit in the subsequent year, the penalty imposition without a determination of duty was deemed unsustainable. The penalty was imposed under Rule 15 of CCR, 2004 r/w section 11AC of the Central Excise Act, 1944. However, without evidence of intentional wrong availing of credit or determination of duty, the penalty was deemed unjustified. The Tribunal cited the Ispat Industries Ltd case, emphasizing that without a determination of duty, penalty under section 11AC was not applicable.

Consequently, the Tribunal modified the impugned order by setting aside the penalty but upheld the demand for interest. The appeal was partly allowed with any consequential reliefs.