2018 (6) TMI 1069 - AT - Central Excise

Penalty u/s 11AC - CENVAT Credit on the written off quantity - Held that - Once the practice of the appellant is that they are reversing the credit, in some of the cases not reversed in time will not amount to mala fide on part of the appellant - Since they are making the provisions in their Books of Account there is not attempt to avoid any reversal of credit, which required in terms of Rule 3(5B) of CENVAT Credit Rules. Therefore, mala fide intention is not proved against the appellant - penalty rightly set aside - appeal dismissed - decided against Revenue.

Summary

Issues:
Imposition of penalty under Section 11AC of the Central Excise Act.

Analysis:
The case involved the Revenue appealing against the dropping of a penalty under Section 11AC of the Central Excise Act by the Commissioner (Appeals). The respondent had been making provisions for raw materials written off in their Books of Account and reversing the CENVAT Credit accordingly. However, in some instances, they failed to reverse the credit, which was highlighted by an audit. A show-cause notice was issued for recovery of CENVAT Credit and imposition of penalty under Section 11AC. The adjudication order confirmed the demand for CENVAT Credit, interest, and imposed a penalty under Section 11AC. The Commissioner (Appeals) upheld the order but dropped the penalty under Section 11AC, leading to the Revenue's appeal seeking restoration of the penalty.

The Revenue argued that the penalty under Section 11AC was warranted as the credit reversal only occurred after being pointed out by the audit. They contended that without the audit's intervention, the reversal could have been avoided, indicating a clear case for the penalty.

In response, the respondent's counsel supported the Commissioner (Appeals)' decision to drop the penalty, citing the absence of any malicious intent on the respondent's part. They highlighted that the reversal of credit was a regular practice, and any delays in specific cases were promptly rectified upon identification. The counsel emphasized that the penalty provision under Rule 15 was not applicable as the case fell under Rule 3(5B) of the CENVAT Credit Rules, which addresses reversal issues, not credit availment disputes.

After considering both sides' arguments and reviewing the records, it was concluded that the respondent's actions did not demonstrate a deliberate attempt to evade duty payment. The practice of making provisions and reversing credits indicated compliance with Rule 3(5B) of the CENVAT Credit Rules, negating any mala fide intention. Therefore, the penalty under Section 11AC was rightfully dropped by the Commissioner (Appeals), and the impugned order was upheld, dismissing the Revenue's appeal.

In the final judgment pronounced on 23.05.2018, it was affirmed that the penalty under Section 11AC was not warranted in this case, and the decision to drop it was in line with the provisions of the CENVAT Credit Rules and the absence of malicious intent on the respondent's part.