2018 (10) TMI 824 - AT - Central Excise

Demand of Interest and penalties - Distribution of CENVAT Credit - violation of Rule 7 of Cenvat Credit Rules, 2004 - excess credit distributed to three units - reversal of credit before issuance of SCN - Held that - The present appeals pertain to three Units. For two other units for the same very issue, the Commissioner (Appeals) has waived the penalties - following the same, penalties set aside - impugned order is modified to the extent of waiving penalties and without disturbing the demand or the interest thereof - appeal allowed in part.

Summary

Issues: Violation of Rule 7 of Cenvat Credit Rules, 2004 in distributing input service credit, recovery of wrongly availed credit, interest, and penalties.

The judgment deals with the violation of Rule 7 of the Cenvat Credit Rules, 2004 by a company engaged in manufacturing. The company availed Cenvat credit based on invoices issued by its registered Input Service Distributor (ISD), the head office. An audit revealed that the head office had distributed input service credit improperly to five units of the company, leading to excess credit distribution in three units. The company voluntarily reversed the irregularly availed credit upon departmental scrutiny but faced a show-cause notice for recovery, interest, and penalties. The original authority and the Commissioner (Appeals) upheld the demand, interest, and penalties, prompting the company to appeal to the Tribunal.

In the appeal, the company contested the interest and penalties imposed, arguing that they had reversed the credit before utilization and maintained sufficient credit balance during the disputed period. The company's counsel highlighted a notification restricting credit distribution by the head office, emphasizing that the distribution was based on a genuine belief in eligibility. The Commissioner (Appeals) had previously waived penalties for two other units facing similar issues, citing Rule 12A(4) of the Cenvat Credit Rules allowing credit transfer between units under the same Legal Transfer of Undertaking (LTU) and the revenue-neutral effect of the excess credit distribution.

After hearing both sides, the Tribunal noted that the company had indeed reversed the credit before utilization and had adequate credit balance during the disputed period. Following the precedent set by the waived penalties for other units, the Tribunal modified the impugned order, waiving the penalties but upholding the demand and interest. The Tribunal considered the cooperative conduct of the company, the revenue-neutrality of the issue, and the change in law, ultimately setting aside the penalties imposed under Rule 15(2) of the Cenvat Credit Rules. The judgment partly allowed the appeal by waiving penalties without disturbing the demand or interest.