2018 (1) TMI 156 - AT - Central Excise

100% EOU - CENVAT credit - reverse charge mechanism - Held that - appellant have paid back the amount utilized by them for discharging the Central Excise Duty on the goods cleared from their 100% EOU unit. They have also made good the interest part - discharge of Central Excise/Customs Duty to the tune of ₹ 10,04,379/- in cash would mean that Revenue has already received the amount twice. Looking at the entire case from that angle and as also that as an EOU, appellant is eligible to avail the Cenvat credit and could have claimed the refund of such credit, I find that it is fair and just and appellant be allowed to take the credit of ₹ 10,04,379/- which was debited, first towards duty and subsequently paid in cash as per the direction of the lower authorities. Penalty u/s 112 - Held that - the penalties so imposed under section 112 of Customs Act, 1962 for violation of the conditions of notification, though on the lower side, needs to be modified and I hold that a penalty of ₹ 15,000/- is just in the interest of justice as a deterrent. Penalty u/s 25 of CER, 2002 and u/r 15(1) of CCR, 2004 - Held that - both these penalties are unwarranted on the fact of the records that appellant had not cleared the goods without payment of duties and has not availed any improper cenvat credit. Penalties imposed under these two heads are also set aside. Penalty u/r 27 of CER, 2002 - Held that - the said penalty has been correctly imposed and no interference is called for. Penalty u/s 76 of FA - Held that - appellant could have misunderstood the provision of Section 76 of Finance Act inasmuch, he had availed the credit of the service tax paid under reverse charge mechanism and utilized the same for making the payment - this is a fit case wherein provisions of Section 80 of Finance Act, 1994 are invokable - penalty set aside. Appeal disposed off.

Summary

Issues:
1. Duty payment on inputs for manufacturing goods in a 100% EOU.
2. Utilization of Cenvat credit and refund claims.
3. Penalties imposed under various sections of Customs Act, Central Excise Rules, Cenvat Credit Rules, and Finance Act.

Analysis:

Issue 1: Duty payment on inputs for manufacturing goods in a 100% EOU
The appellant, a manufacturer of solar photovoltaic modules in a 100% EOU, was entitled to import duty-free inputs for manufacturing goods fully exported. However, discrepancies were found in the ER2 returns regarding duty payments on inputs and service tax credits. The authorities observed that the appellant paid service tax on commission to a foreign agency, which was incorrectly shown as input credit. The appellant rectified the duty payment and interest part, but the question arose whether the appellant could claim Cenvat credit for the duty paid in cash.

Issue 2: Utilization of Cenvat credit and refund claims
The Tribunal held that the appellant, having paid the duty in cash, should be allowed to take the credit of the amount debited towards duty. It was deemed fair as the Revenue had already received the amount twice. The Tribunal emphasized that the appellant, as an EOU, was eligible to avail Cenvat credit and could have claimed a refund. Therefore, the appellant was permitted to take the credit of the amount paid in cash as directed by the lower authorities.

Issue 3: Penalties imposed under various sections
Regarding penalties, the Tribunal modified the penalty imposed under the Customs Act, 1962, to a lower amount of ?15,000 as a deterrent. Penalties under Central Excise Rules 2002 and Cenvat Credit Rules 2004 were set aside since the appellant had not cleared goods without paying duties or availed improper Cenvat credit. However, the penalty under Central Excise Rules 2002 was upheld. In the case of the penalty under Section 76 of the Finance Act, 1994, the Tribunal invoked Section 80 of the Act due to a possible misunderstanding by the appellant. The penalty imposed under Section 76 was set aside based on the appellant's bonafide error in understanding the law.

In conclusion, the appeal was disposed of with the appellant allowed to take the credit of the duty paid in cash, penalties modified or set aside based on the Tribunal's analysis of the violations and circumstances, and invoking relevant provisions of the Acts to ensure justice and fairness in the decision.