2018 (4) TMI 1495 - AT - Central Excise

Recovery of excess refunds - CENVAT credit - area based exemption - N/N. 56/2002-CE dated 14.11.2002 - revenue was of the view that the appellant should have availed the credit in their books and paid duty by cash only on the excess - Liability of interest - penalty - In view of the non-compliance with the mandatory condition of Notification No. 56/2002-CE, the demand of wrongly availed refund by way of self-credit should be upheld but no interest and penalty be imposed? - difference of opinion - majority order. Held that - It is seen that though initially the appellant did not follow the stipulated procedure by first entering the credit, utilizing the same and availing self-credit on only excess payment, however, later in order to rectify the said mistake, the said amount which was already availed as self-credit was entered into in the Cenvat credit books. This was utilized for payment of duty on final products. The net result is on this subsequent utilization of credit the payment by cash got reduced resulting in less refund to the appellant - denying and demanding the wrongly availed self-credit on first instance is not sustainable. Admittedly, the appellant followed the correct procedure on the second time though on the first instance they have wrongly taken direct self-credit. Interest and penalty - Held that - the inadvertent mistake in the first instance was rectified later by following due procedure - interest and penalty also do not sustain. Appeal allowed - the appeal file is returned back to the regular bench for further action.

Summary

Issues Involved:
1. Eligibility and compliance with the exemption Notification No. 56/2002-CE.
2. Entitlement to refund of duty paid in cash.
3. Imposition of interest and penalty for non-compliance with the notification.

Detailed Analysis:

1. Eligibility and Compliance with the Exemption Notification No. 56/2002-CE:
The appellant, a manufacturer of medicines in Jammu, was working under the exemption Notification No. 56/2002-CE, which required them to first avail the Cenvat credit of duty paid on inputs and utilize such credit for payment of duty on the final product. If the duty on the final product exceeded the Cenvat credit, the remaining duty was to be paid in cash, for which a refund could be claimed. The appellant did not avail the Cenvat credit of additional duty of customs paid on imported raw materials due to a bona fide belief that it was not available to them. Consequently, they paid the duty on their final product in cash and claimed a refund of the said cash payment. The Revenue contended that the appellant's action of paying duty in cash without first availing the Cenvat credit resulted in an undue refund claim, leading to the issuance of a show cause notice for recovery of the refund along with interest and penalty.

2. Entitlement to Refund of Duty Paid in Cash:
The appellate tribunal noted that the appellant's non-availment of Cenvat credit and subsequent cash payment of duty was due to a bona fide mistake. The tribunal observed that the appellant was entitled to a refund of the cash duty paid, as the entire situation was revenue neutral. The refund was admissible only for the amount paid in cash, and the appellant did not gain any undue benefit from the non-availment of credit. The tribunal found no merit in the Revenue's claim that the appellant had availed an excess refund, as the appellant subsequently rectified the mistake by availing the credit, which could be utilized for future payments, leading to less cash payments and consequent less refunds.

3. Imposition of Interest and Penalty:
The tribunal found no justification for the imposition of interest and penalty. It noted that interest is applicable only in cases where the principal amount is deprived to the Revenue, which was not the case here as the amount claimed as refund was already paid by the appellant. The tribunal also observed that the appellant did not gain any undue benefit from the non-availment of credit, and instead, faced a disadvantage by paying higher duty in cash. Therefore, the imposition of penalty was not warranted.

Separate Judgment by Member (Technical):
The Member (Technical) held that the appellant's non-compliance with the mandatory condition of the notification resulted in an undue refund claim. However, considering the appellant's bona fide mistake and subsequent rectification, the Member (Technical) upheld the demand for the wrongly availed refund but set aside the imposition of interest and penalty, following the decision of the Hon'ble Supreme Court in the case of CCE, Pondicherry Vs. Honda Siel Power Products Ltd.

Third Member's Decision:
The third Member, B. Ravichandran, noted that the appellant initially did not follow the stipulated procedure but later rectified the mistake by entering the credit into the Cenvat credit books and utilizing it for payment of duty on final products. As the net result was revenue neutral, the third Member found no reason to uphold the demand for the wrongly availed self-credit, though without interest and penalty.

Final Order:
In view of the majority order, the demand, interest, and penalty imposition were set aside, and the appeal was allowed with consequential relief.