2018 (1) TMI 623 - AT - Central Excise

CENVAT credit - inputs - repair and maintenance of old Transformers - Held that - Inasmuch as the appellants were manufacturing transformers and were availing Cenvat credit of duty paid on inputs, there could be a bonafide belief on their part that such credit is available on their activities. In the absence of any evidence to show that such availment was being carried out by the appellant with a malafide intention, penal provisions should not be invoked. Extended period of limitation - Held that - the notice issued after limitation from the date of the audit, had to be held as barred by limitation, inasmuch as the suppression, if any came to be notice of the Revenue, when the audit were conducted - penalty also set aside. Appeal allowed in part.

Summary

Issues:
1. Availment of Cenvat credit on inputs used for repair and maintenance activities.
2. Imposition of penalty under Rule 15 of Cenvat Credit Rules read with Section 11AC of the Act.
3. Contention regarding bonafide belief in availing the credit.
4. Challenge on the point of limitation for issuing the show cause notice.

Analysis:

1. The appellants were involved in manufacturing transformers and were availing Cenvat credit of duty paid on various goods used in manufacturing, as well as in repair and maintenance activities. The issue arose when officers found discrepancies during a factory visit related to availing credit on inputs used for repair activities, which do not amount to manufacturing under Cenvat rules.

2. Subsequently, the appellants were directed to reverse the proportionate credit used for repair and maintenance activities, which they complied with, along with paying interest. However, penalty proceedings were initiated against them under Rule 15 of Cenvat Credit Rules read with Section 11AC of the Act, invoking the extended period of limitation, leading to the imposition of a penalty of ?2,47,196/- by the Original Adjudicating Authority.

3. The appellant contended that they availed the credit under a bonafide belief that it was permissible since the inputs were used for repair of their goods. They argued that the reversal of credit along with interest was done promptly upon notification by the officers, and that the imposition of a separate penalty was unjustified. The appellant also relied on a decision by the Hon’ble Allahabad High Court to support their case.

4. The Tribunal, after considering the arguments and the facts of the case, found that the appellants had reversed the credit with interest upon notification to the officers. The Tribunal acknowledged that the appellants could have genuinely believed they were entitled to the credit for their activities. Additionally, the Tribunal noted that the show cause notice was issued beyond the period of limitation, invoking the extended period, and referred to the High Court decision to hold the notice as barred by limitation. Consequently, the Tribunal set aside the penalty imposed on the appellants, while confirming the demand and interest not challenged by the appellant.