2023 (9) TMI 1134 - AT - Central Excise

Benefit of N/N. 1/2011 dated 1.3.2011 - credit availed on inputs and input services used in the manufacture of the final products on which the concessional rate of duty is being availed - levy of penalty - HELD THAT - The appellant manufactures foam and foam products and rubberised coir products. On foam products, standard rate of duty 12% is being discharged and accordingly, credit is availed on all inputs and input services. Foam is also captively used in the manufacture of Rubberised coir mattresses for which concessional rate of duty is availed and therefore, credit cannot be availed as per the exemption Notification No. 1/2011 dated 1.3.2011. The appellant admits the fact that they are aware of the fact that on rubberised coir mattresses, they are not supposed to avail CENVAT credit on inputs and inputs services in as much as they were claiming concessional rate of duty - when all other units were strictly following the conditions of the exemption Notification, how could this contravention by this unit go unnoticed by their own audit officers during the submission of the financial statement of the company. Whether there was any violation of the conditions of the exemption Notification as the mistake once noticed was made good by reversing the entire credit along with interest? - HELD THAT - The irregular availment of credit came to the notice of the department only after the officers of internal audit party visited their unit and verified their records. The Commissioner at para 29 of the impugned order also notes that on one hand, the noticee claim that they have taken a policy decision to clear the goods on payment of 1% duty and on the other, they claim that there was confusion in their minds regarding CENVAT credit to be availed. It cannot be accepted that the contravention has not come to the notice of the noticee either at the time of their internal audit, statutory audit or during the preparation of the financial statement of the company - it is very clear that the appellant had consciously taken CENVAT credit which was irregular. Hence, having suppressed the facts, the Commissioner was right in invoking the Proviso to Section 11A. Penalties on Shri Kushroo, Engineer, Head of Finance; Shri M. S. Kamath, Vice President and Shri T. Sudhakar Pai, Chairman and Managing Director, the only allegation in the show-cause notice is that they are decision makers on the statutory matters of the company - HELD THAT - But there are no specific allegations specified to allege their involvement in taking irregular credit by the company in spite of a policy decision was taken by the Senior Officers of the company not to avail credit. The error committed by the ground level officers cannot be alleged to be done with the knowledge of the above senior officers. Therefore, the Chairman and Managing Director of the company, the Vice President and Head of Finance cannot be penalized. It is also a fact that as and when it came to their knowledge, they ordered immediate reversal of credit of Rs.1,57,29,304/- hence, the penalty imposed on them is set aside. Appeal is disposed of by way of remand only for redetermination of penalty under Rule 25 read with Section 11AC of the Central Excise Act, 1944.

Summary

Issues Involved:
1. Eligibility for the benefit of Notification No. 1/2011 dated 1.3.2011.
2. Invocation of Proviso to Section 11A.
3. Imposition of penalties on senior officers.

Summary:

1. Eligibility for the benefit of Notification No. 1/2011 dated 1.3.2011:
The appellant, a manufacturer of Rubberised Coir products and foam products, availed the benefit of Notification No. 1/2011, paying duty at 1% on coir products, subject to non-availment of CENVAT credit on inputs and input services. However, internal audit revealed that the appellant had availed CENVAT credit, leading to a notice denying the benefit of the Notification. The Commissioner confirmed the demand of duty for the period from 1.3.2011 to 31.3.2013 and imposed penalties on senior company officials. The appellant argued that they reversed the credit along with interest upon audit observation, implying no credit was availed, thus seeking the benefit of the Notification. The Tribunal, citing various Supreme Court judgments, emphasized strict compliance with the conditions of the Notification for claiming its benefit.

2. Invocation of Proviso to Section 11A:
The Tribunal upheld the invocation of Proviso to Section 11A, noting that the appellant knowingly availed CENVAT credit despite a policy decision to forego it for concessional duty. The irregular credit was identified only during an internal audit, indicating suppression of facts. The Tribunal referenced the Delhi High Court's judgment in a similar case, which was upheld by the Supreme Court, supporting the invocation of the extended period of limitation due to the appellant's conscious actions.

3. Imposition of penalties on senior officers:
The Commissioner imposed penalties on the appellant's senior officers, including the Chairman and Managing Director, Vice President, and Head of Finance, based on their roles in statutory decision-making. However, the Tribunal found no specific allegations proving their involvement in the irregular credit availed by the company. It recognized that the senior officers ordered the immediate reversal of credit upon discovery, thus setting aside the penalties imposed on them.

Conclusion:
The Tribunal remanded the case for redetermination of the penalty on the company under Rule 25 read with Section 11AC of the Central Excise Act, 1944, considering the amount already paid during the relevant period. Appeals concerning the penalties on the senior officers were allowed. The order was pronounced in open court on 20.09.2023.