2017 (3) TMI 164 - AT - Central Excise

CENVAT credit - wrongful availment - penalty - purchases from EOUs who are charging duties after availing exemption in terms of Sl. No.2 of N/N. 23/2003-CE dated 31.03.2003 - credit has to be availed as per the formulae prescribed u/r 3(7)(a) of CCR, 2004 - Held that - the excess credit happened to be availed by the credit only because of the wrong application of formulae - there were divergent views with regard to the interpretation and the application of the formulae. The appellants have reversed the credit immediately on pointing out the same by the department. Therefore there is no evidence to establish any suppression of facts with an intention to evade payment of duty - penalty set aside - appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Availing excess credit by wrongly applying formulae under Rule 3(7)(a) of CENVAT Credit Rules, 2004.
2. Applicability of penalty under section 11AC of Central Excise Act.
3. Interpretation of the formulae provided in Rule 3(7)(a) of CENVAT Credit Rules, 2004.
4. Sustainability of show cause notice invoking the extended period.
5. Consideration of penalty in case of no wilful suppression of facts.

Analysis:

1. The appellants, engaged in the manufacture of 'PET Preforms' and 'Woven Sacks,' were alleged to have availed excess credit by wrongly applying the formulae under Rule 3(7)(a) of CENVAT Credit Rules, 2004. The show cause notice claimed a demand of ?2,25,908/- along with interest and an equal amount of penalty under section 11AC of the Central Excise Act. The issue revolved around the correct interpretation and application of the formulae.

2. The appellant's representative argued that due to frequent changes in the formulae and divergent interpretations, the excess credit was unintentional. The appellant promptly reversed the credit upon departmental notification, even before the issuance of the show cause notice. It was contended that there was no suppression of facts, and the mistake was based on a genuine belief regarding the formulae application.

3. The department maintained that the appellants were liable to pay the penalty for availing excess credit. They argued that the show cause notice invoking the extended period was justified as the excess credit would not have come to light without departmental intervention.

4. Upon reviewing the case, the Tribunal noted that the excess credit was a result of the incorrect application of the formulae under Rule 3(7)(a) of CENVAT Credit Rules, 2004. The Tribunal recognized the multiple amendments to the formulae over different periods and the divergent interpretations that led to the inadvertent excess credit. The Tribunal found no evidence of deliberate suppression of facts to evade duty payment.

5. Ultimately, the Tribunal held that the penalty was unwarranted in the absence of wilful suppression of facts. Citing a previous judgment in a similar case, the Tribunal set aside the penalty imposed, concluding that the show cause notice invoking the extended period was not sustainable. The appeal was allowed in favor of the appellants with consequential reliefs.

This comprehensive analysis highlights the key legal issues, arguments presented by both parties, and the Tribunal's reasoning leading to the final decision in the judgment.