2016 (11) TMI 422 - AT - Central Excise

Cenvat credit on Capital goods when Cenvat credit availed as well as claimed depreciation - subsequent reversal of Cenvat credit and depreciation by issuing voucher - Penalty imposed - Held that - Adjudicating authority has not properly examined the facts that whether depreciation initially claimed by the appellant have been reversed and finally not claimed in their balance sheet. If the depreciation has not been claimed in the balance sheet even though initially it was claimed, Cenvat Credit cannot be denied. However it appears from the order that this aspect has not been examined by the Adjudicating Authority. As regard the imposition of penalty, find that not only in the show cause notice but in the Adjudication order also demand confirmed under Section 11A for an amount of ₹ 7,091/- whereas penalty under Section 11AC was imposed for an amount of ₹ 4,49,357/-. Penalty under Section 11AC can only be imposed when the duty demand is determined under Section 11A(1). In the present case the duty determined under Section 11A(1) is limited to ₹ 7,091/- therefore penalty over and above this amount is not sustainable as the same is not corresponding to any amount of duty determined under Section 11A(1). However issue of admissibility of Cenvat credit is yet to be decided by the Adjudicating authority. In view of my above observations penalty if at all, is imposable it is to be commensurate to the duty if any confirmed. This matter needs to be remanded.

Summary

Issues:
1. Entitlement to Cenvat credit on capital goods when both credit and depreciation claimed.
2. Imposition of penalty under Section 11AC.

Entitlement to Cenvat Credit:
The appeal challenged an Order-in-Appeal upholding an Order-in-Original that denied Cenvat credit to the appellant for claiming both credit and depreciation on capital goods. The Adjudicating Authority confirmed the demand for wrongly availed credit and imposed interest and penalties. The appellant argued they reversed both the credit and depreciation, but the Adjudicating Authority did not properly investigate if the depreciation was not claimed in the balance sheet. The Tribunal noted that if depreciation was not reflected in the balance sheet despite initial claim, Cenvat credit could not be denied. The Tribunal found the Adjudicating Authority failed to address this crucial aspect, leading to a remand for a fresh adjudication considering these observations.

Imposition of Penalty under Section 11AC:
Regarding the penalty imposed under Section 11AC, the Tribunal highlighted discrepancies in the penalty amount. While the duty demand confirmed under Section 11A was only &8377; 7,091, a penalty of &8377; 4,59,357 was imposed under Section 11AC. The Tribunal clarified that penalties under Section 11AC should correspond to the duty determined under Section 11A(1). As the penalty exceeded the duty amount, it was deemed unsustainable. The Tribunal emphasized that any penalty should be commensurate with the duty confirmed. The issue of Cenvat credit admissibility was left for the Adjudicating Authority to decide, necessitating a remand for a fresh adjudication to address these discrepancies and determine the appropriate penalty based on the duty demand.

This detailed analysis of the judgment highlights the issues of entitlement to Cenvat credit on capital goods and the imposition of penalties under Section 11AC, providing a comprehensive overview of the Tribunal's decision and the reasons behind the remand for further adjudication.