2019 (7) TMI 1168 - AT - Central Excise

CENVAT Credit - input found short in the stock - period 2007-08 and from 01.04.2009 to 28.04.2010 - goods written off - demand of interest and penalties imposed - HELD THAT - The appellant has explained that the shorage is due to writing off of the raw materials in their books of accounts. The department has not adduced any evidence to the contrary. There is no allegation that goods were removed from the factory. In paras 10, 11 and 12 of the order passed by the original authority, the adjudicating authority has stated that the credit has been wrongly availed, since there is shortage of raw materials. When there is shortage of raw materials by writing off, Rule 3(5B) of Cenvat Credit Rules, 2004 would apply. The period involved being prior to 01.03.2013, the demand of interest and imposition of penalties with respect to credit alleged to be wrongly availed in regard to shortage of raw materials cannot sustain and requires to be set aside - decided in favor of assessee. Excess credit availed by the assessee - HELD THAT - Admittedly, the appellants have availed wrong credit by taking credit twice on the same invoices. Though, the appellants contend that it is an inadvertent mistake, they are liable to pay interest on the wrong credit availed by them till the reversal of the credit. Taking note of the fact that the credit availed by them was reversed on being pointed out, the situation does not warrant imposition of penalties - Penalty set aside. Appeal allowed in part.

Summary

Issues:
1. Demand of interest and penalties for shortage of raw materials during physical stock verification.
2. Allegation of excess credit availed on two invoices.

Analysis:

Issue 1: Demand of interest and penalties for shortage of raw materials during physical stock verification
The appellants, engaged in manufacturing motor cars, were found with a shortage of raw materials during physical stock verification for the period 2008-09 and 2009-10. The department alleged wrong availment of Cenvat Credit on inputs found short and issued show-cause notices. The appellants reversed the wrongly availed credit but did not pay the interest. The original authority confirmed the demand of interest and imposed penalties, upheld by the Commissioner (Appeals). The appellants argued that the shortage was due to raw materials getting mixed up and being written off in the books of accounts. They contended that until 2013, there was no provision for payment of interest or penalties for such reversals. Relying on precedents, the tribunal held that the demand of interest and penalties for credit wrongly availed due to raw materials shortage before 2013 cannot be sustained. The tribunal found in favor of the assessee on this issue.

Issue 2: Allegation of excess credit availed on two invoices
The second issue involved excess credit availed by the appellants on two invoices for the period 2007-09. The appellants had inadvertently availed credit twice on the same invoices, which was immediately reversed upon discovery. The tribunal noted that while interest was payable on the wrong credit availed until reversal, the situation did not warrant the imposition of penalties. Consequently, the penalty was set aside on this ground. The tribunal partly allowed Appeal No. E/44170/2013 and allowed Appeal No. E/41169/2013 with consequential reliefs, if any.

In conclusion, the tribunal ruled in favor of the appellants on the demand of interest and penalties for shortage of raw materials due to the lack of provision before 2013. The tribunal also found that while interest was payable on excess credit availed, no penalties were warranted in this case.