2019 (11) TMI 49 - AT - Central Excise

CENVAT Credit - common input services used for trading and manufacturing activities of the company - exempt trading services - non-maintenance of separate records - Rule 6(3(A)) of CCR, 2004 - HELD THAT - In view of the settled position that if the respondent has not utilized the CENVAT credit and has paid the duty prior to the issuance of the show-cause notice, then they are not required to pay interest and penalty in view of the decision of the Hon ble Karnataka High Court in the case of COMMISSIONER OF CENTRAL EXCISE SERVICE TAX LARGE TAXPAYER UNIT, BANGALORE VERSUS M/S BILL FORGE PVT LTD, BANGALORE 2011 (4) TMI 969 - KARNATAKA HIGH COURT - there is no infirmity in the impugned order dropping the penalty - Appeal dismissed - decided against Revenue.

Summary

Issues:
Revenue's appeal against dropping of penalty under Section 11AC of the Central Excise Act, 1944 read with Rule 15(2) of CENVAT Credit Rules, 2004 by Commissioner(Appeals).

Analysis:
The case involved the Revenue appealing against the dropping of a penalty of ?20,91,935 under Section 11AC of the Central Excise Act, 1944, by the Commissioner(Appeals). The respondent, engaged in manufacturing activities, had availed CENVAT credit on common input services used for both trading and manufacturing activities. The Department alleged that the respondent wrongly availed the credit on services related to exempted trading activities. A show-cause notice was issued demanding the recovery of the wrongly availed credit, interest, and a penalty of 50% of the duty amount. The respondent contended that they had already reversed the credit before the notice was issued, citing inadvertent errors in the reversal amount. The original authority confirmed the demand, imposed a penalty, and demanded interest. The Commissioner(Appeals) held that since the entire credit amount was reversed along with interest before the notice, the penalty was not applicable.

The Revenue argued that the penalty should not have been dropped merely because the credit was reversed before the notice, emphasizing the duty payment prior to the notice issuance and the extended period under the Central Excise Act. The respondent defended the order, stating no suppression of facts and sufficient CENVAT credit balance throughout the disputed period. They relied on a Karnataka High Court decision to support their position that if the credit was not utilized and duty was paid before the notice, interest and penalty were not required. The Tribunal upheld the dropping of the penalty based on the Karnataka High Court decision, finding no infirmity in the Commissioner(Appeals) order. Consequently, the Revenue's appeal was dismissed.

In conclusion, the Tribunal's decision was based on the interpretation of the law regarding the reversal of CENVAT credit before the issuance of the show-cause notice, as supported by the Karnataka High Court precedent. The case highlights the importance of timely compliance with CENVAT credit rules and the implications of penalty imposition under the Central Excise Act.