2019 (8) TMI 674 - AT - Central Excise

Demand of interest and penalty - CENVAT Credit - inputs - irregular availment of Cenvat Credit on input stored outside the factory in contravention of Rule 8 of the Cenvat Credit Rules, 2004 - period June 2011 to March 2013 - whether penalty and interest can be imposed for availing Cenvat credit on inputs stored outside the factory? HELD THAT - The Ld. Commissioner has made a detailed examination of the ER-1 returns filed by the appellant, on perusal of which he has given a specific finding that availment and reversal of credits have duly been reflected in the said returns which is based on the RG-23A Pt-II registers maintained at both the places within the factory as well as the Storage tank located outside the factory. He also observed that said availment of credit has been shown under the head of other payment in ER-1 returns. Moreover, he has admitted that merely because of error in availment of credit when the entire input covered in an invoice are received in the factory, the substantial benefit of cenvat credit cannot be denied. Demand of interest - HELD THAT - The fact that adequate credit balance is available during the material period and is not in dispute. Despite that credit has been pre-maturely reflected in the RG-23 register and ER-1 return since goods were not received in the factory, there is no consequent short payment of duty and hence no loss to exchequer - Moreover, as the Ld. Commissioner himself has observed that for mere procedural lapse, the substantial benefit of credit cannot be denied, more particularly in case where there is a sufficient credit balance always available during the period in dispute - interest cannot be levied when sufficient credit balance is available, despite that a portion of credit amount has been availed contrary to the guidelines issued in trade notices, inasmuch as in such cases there is no loss to the exchequer and therefore there cannot be any question to compensate the Revenue by levying interest. The demand of interest and the penalty imposed cannot be sustained and accordingly, the same are set aside - appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Imposition of penalty for alleged wrong availment of Cenvat Credit.
2. Imposition of interest for alleged wrong availment of Cenvat Credit.

Issue-wise Detailed Analysis:

1. Imposition of Penalty:

The appellant, M/s. Tide Water Oil Co. (India) Ltd., faced a penalty for allegedly availing Cenvat Credit on inputs stored outside the factory premises, which was claimed to be in contravention of Rule 8 of the Cenvat Credit Rules, 2004. The Ld. Commissioner acknowledged that the appellant was legally entitled to the credit and had sufficient credit balance, excluding the disputed credit. The credit transactions were transparently reflected in ER-1 returns under "other payments," indicating no suppression of facts. The Ld. Commissioner admitted that the procedural irregularity did not lead to any loss to the exchequer, as the inputs were used in manufacturing final goods on which excise duty was paid. Despite this, a penalty of ?5,00,000 was imposed under Rule 15(2) of the Credit Rules read with Section 11AC of the Central Excise Act, 1944, which the Tribunal found unsustainable due to the absence of fraud or suppression. The Tribunal thus set aside the penalty, referencing the decision in Mangalam Enterprise vs. CCE, Vadodara and other relevant judgments, emphasizing that procedural lapses should not lead to the denial of substantial benefits.

2. Imposition of Interest:

The appellant was also imposed an interest of ?10,74,459 under Section 11AA of the Central Excise Act, 1944. The Ld. Commissioner noted that the appellant had sufficient credit balance throughout the relevant period, and the premature availment of credit did not result in any short payment of duty or loss to the exchequer. The Tribunal found that the decision in CCE, Mumbai –I vs. KRCD Ltd. relied upon by the Ld. Commissioner was not applicable, as it involved a different context where the premature availment led to a short payment of output duty. The Tribunal referred to the decisions in Savio India Ltd., Commr of C.Ex., Puducherry Commissionerate vs. CESTAT, Chennai, and Maruti Udyog Limited, which held that interest is not leviable when there is sufficient credit balance and no loss to the exchequer. The Tribunal also noted that any payment made during adjudication is deemed to be "under protest," referencing Maihar Cement v. CCE, Bhopal and similar cases. Consequently, the demand for interest was set aside.

Conclusion:

The Tribunal concluded that both the penalty and interest imposed on the appellant could not be sustained due to the absence of fraud, suppression, or loss to the exchequer. The appeal was allowed with consequential benefits, and the impositions were set aside.