2017 (3) TMI 418 - AT - Central Excise

CENVAT credit - failure to reverse the Additional Duty of Customs (SAD @4%) on removal of inputs as such - when such components/inputs were cleared as such the Cenvat credit in respect of other components of input duty reversed but the component related 4% of Additional Duty of Customs (SAD) was not reversed - applicability of Sub section (2B) of Section 11A of Central Excise Act, 1944 - Held that - Sub section (2B) of Section 11A is not invokable in the present case for the reason that Revenue could not establish that there was intention to pay less amount as compared to require amount because the exercise was revenue neutral - there was no need for issue of SCN in respect of said issue i.e. the demand of ₹ 2,93,33,114/- - the question of imposition of penalty of said allowed violation does not arise. Whether removal of inputs as such by the manufacturer can be treated as trading activity? - demand - Held that - clearance of inputs as such on which cenvat credit was availed does not amount to trading and in the present case allegations are made based on the presumption that such activity as trading. Therefore, that part of the Cause Notice is not sustainable. Appeal allowed - decided in favor of appellant.

Summary

Issues:
Appeals arising from common Order-in-Original; Challenge against demand of Additional Duty of Customs (SAD) and Service Tax credit reversal; Imposition of penalties under Cenvat Credit Rules, 2004.

Analysis:
The appeals arose from a common Order-in-Original issued by the Commissioner of Central Excise, Noida, concerning the reversal of Cenvat credit on components used in manufacturing passenger cars. The appellants availed Cenvat credit of 4% Additional Duty of Customs (SAD) on imported components, which were later cleared to vendors/OEMs for sub-assembly manufacturing. The department alleged non-reversal of credit on certain components, leading to a demand of ?2,93,33,114. Additionally, a Service Tax credit reversal demand of ?9,69,144 was made. The Original Authority confirmed these demands, imposed penalties under Rule 15 of Cenvat Credit Rules, 2004, and proposed personal penalties. The appellants contended the exercise was revenue-neutral, citing precedents and challenging the penalty imposition. The Tribunal analyzed the case based on the intention to evade duty, applicability of penalty provisions, and the nature of clearances as trading activities.

The Tribunal considered the provisions of Sub-section (2B) of Section 11A of the Central Excise Act, 1944, finding that the explanation related to intention was not applicable due to the revenue-neutral nature of the exercise. Consequently, the issue of imposing penalties for the alleged violation did not arise. Regarding the demand of ?9,69,144, the Tribunal referred to precedents establishing that clearances of inputs as such, on which Cenvat credit was availed, do not constitute trading activities. Hence, the allegations based on the presumption of trading were deemed unsustainable. Consequently, the Tribunal set aside the penalties imposed and the demand confirmation, providing relief to the appellants and quashing penalties on the General Manager. The Order-in-Original was set aside in part, allowing the appeals on the mentioned terms, with the appellants entitled to consequential relief as per law.