2018 (2) TMI 382 - AT - Central Excise

CENVAT credit - final product becomes exempted absolutely - recovery of credit availed along with penalty - Held that - the provision of Rule 11 of Central Credit Rules, 2004 required the manufacturer to pay an amount equivalent to Cenvat Credit involved in the inputs lying in stock on the date on which the final product becomes absolutely exempted under a Notification issued under Section 5A of Central Excise Act, 1944. The proceedings can be limited only to the recovery of amount equivalent - The Act or Rules made thereunder have not provided for imposition of any penalty - appeal dismissed - decided against Revenue.

Summary

Issues:
1. Interpretation of Rule 11 of Cenvat Credit Rules, 2004 regarding payment of Cenvat Credit.
2. Applicability of penalty under Rule 25 of Central Excise Rules, 2002 in case of exemption of final product.

Analysis:
1. The case involved a dispute regarding the demand and recovery of Cenvat Credit amounting to ?20,59,814 from the respondent, who were engaged in the manufacture of Menthol and DMO. The issue revolved around the exemption of Menthol and Menthol Crystals from Central Excise duty under Notification No. 4/2008-CE dated 01.03.2008. The respondent was issued a show cause notice calling for payment of Cenvat Credit under Rule 11(3)(ii) of Cenvat Credit Rules, 2004. The Order-in-Original confirmed the demand and imposed a penalty under Rule 25 of Central Excise Rules, 2002. However, the Commissioner (Appeals) held that Rule 25 was not applicable in this case, leading to the appeal before the Tribunal by the Revenue.

2. Upon hearing the arguments and examining the record, the Tribunal, through Mr. Anil G. Shakkarwar, Member (Technical), analyzed Rule 11 of Cenvat Credit Rules, 2004. The provision required the manufacturer to pay an amount equivalent to the Cenvat Credit involved in the inputs lying in stock when the final product becomes absolutely exempted under a Notification issued under Section 5A of the Central Excise Act, 1944. The Tribunal emphasized that the proceedings could only focus on the recovery of the equivalent amount and noted the absence of any provision for imposing a penalty under the Act or Rules. Consequently, the Tribunal found no fault in the Order-in-Appeal, leading to the rejection of the appeal filed by the Revenue.

In conclusion, the Tribunal's judgment clarified the application of Rule 11 of Cenvat Credit Rules, 2004 in cases of absolute exemption of final products and highlighted the limitations on penalty imposition under the Central Excise Act and Rules. The decision provided a clear interpretation of the legal provisions involved and resolved the dispute in favor of the respondent, upholding the Order-in-Appeal that set aside the penalty imposed by the Commissioner (Appeals).