2009 (11) TMI 441 - AT - Central Excise

Cenvat Credit - Capital goods - Component, spares and accessories of goods specified in preceding clauses of Rule 2 of Cenvat Credit Rule 2004. Held that- assessee not cared to specify capital goods of which impugned goods claimed to be components, spares or accessories. On verification of records, it appeared to the department that this credit had been wrongly taken. The department repeatedly asked the party to reverse it. Ultimately the assessee reversed the entire credit. Subsequently, a show-cause notice was issued for recovery of interest and for imposition of penalty. Held that- there is no allegation of fraud, wilful suppression, collusion or misstatement. Though there is mention of intention to evade duty by the noticee, there is no specific allegation as to whether they contravened any specific provision of law with such intention. In this scenario, applicability of sub-rule (2) of Rule 15 is ruled out. Only sub-rule (1) can be applied to the facts of this case. in this situation, the penalty cannot exceed the amount of duty or Rs. 2000/- whichever is greater impliedly a lesser penalty can also be imposed. The provision, in other words, confers discretion on quasi-judicial authority. It was this discretion, which in the facts of the case was correctly exercised by the Commissioner (Appeals). The Revenue s appeal also gets dismissed.

Issues:
1. Denial of Cenvat credit on inputs and capital goods.
2. Imposition of penalty under Section 11AC of the Central Excise Act, 1944.
3. Reduction of penalty by the Commissioner (Appeals).
4. Challenge against denial of Cenvat credit, penalty, and interest.
5. Enhancement of penalty in Revenue's appeal.

Analysis:

Issue 1: Denial of Cenvat credit on inputs and capital goods
The assessee had taken Cenvat credit on inputs and capital goods during the material period. The department found that this credit had been wrongly taken and asked the party to reverse it. The show-cause notice was issued for recovery of interest and imposition of penalty. The original authority confirmed the demand of duty, penalty equal to duty, and interest on duty. The appellate authority sustained this decision with a reduction in the quantum of penalty.

Issue 2: Imposition of penalty under Section 11AC
The penalty was imposed under Section 11AC as the department confirmed the demand of duty against the assessee and the entire credit was reversed by the party. The reversal of credit was not made under protest, and no replies were filed to contest the show-cause notice. The penalty was imposed equal to the duty amount under Section 11AC.

Issue 3: Reduction of penalty by the Commissioner (Appeals)
The Commissioner (Appeals) reduced the penalty imposed on the assessee while sustaining the order of adjudication. The assessee's appeal challenged the denial of Cenvat credit, penalty, and interest, stating that the availment of Cenvat credit on inputs was correct as they were utilized in the manufacture of excisable goods cleared on payment of duty.

Issue 4: Challenge against denial of Cenvat credit, penalty, and interest
The assessee's appeal contended that the denial of Cenvat credit on inputs and capital goods was incorrect. The appeal argued that the entire credit was reversed prior to the issuance of the show-cause notice, making the penalty and interest not imposable under Section 11AC and Section 11AB, respectively.

Issue 5: Enhancement of penalty in Revenue's appeal
In the Revenue's appeal, a prayer was made for the enhancement of penalty to an amount equal to duty under Section 11AC. The Revenue argued that the assessee deliberately took inadmissible Cenvat credit to evade payment of duty. The show-cause notice invoked Rule 15 of the Cenvat Credit Rules, and the maximum penalty prescribed under Section 11AC was sought to be imposed.

The judgment dismissed the appeal filed by the assessee and the Revenue's appeal for enhancement of penalty. The discretion of quasi-judicial authority in imposing penalties under Rule 15 was discussed, and it was concluded that sub-rule (1) applied in this case, limiting the penalty to the amount of duty or Rs. 2000, whichever is greater. The cross-objection filed by the assessee was also disposed of.

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