CONFISCATION AND PENALTY

(Rule 15 of CENVAT Credit Rules)

 Rule 15 of CENVAT Credit Rules, 2004 deals with imposition of penalty for wrongly availing CENVAT Credit or without taking reasonable steps to ensure that duty or tax has been paid or for contravention of rules. In cases where assesses claim or avail CENVAT Credit but where in fact they are not entitled to avail credit, penalty would generally be levied. However, in genuine case of ambiguity or confusion or where interpretation is involved, penalty may not be levied if the action is bonafide. In case of dispute relating to bonafide interpretation of CENVAT rules, imposition of penalty is not justified as was held in AMIIGO Brushes Pvt. Ltd. v. CCE, Vadodara-I 2005 (8) TMI 109 - CESTAT MUMBAI wherein penalty levied was set aside.

Rule 15(3) deals with on taking CENVAT Credit wrongly and Rule 15(4) deals with taking and utilising wrongly. Thus from CENVAT point of view, taking wrongly or taking and utilizing wrongly are both punishable offences.

Where credit was taken but not utilized as it was subsequently held to be disallowed, it was held that interest under Rule 14 was leviable from the date of utilization of credit and not from the date of entry in RG-23 and hence demand of interest was set aside (Noolani Tex Prints v. CCE, Jaipur-II 2007 (9) TMI 96 - CESTAT, NEW DELHI.

• If any person takes CENVAT Credit in respect of input or capital goods wrongly or without taking reasonable steps to ensure that appropriate duty on the said input or capital goods has been paid as indicated in the document accompanying the input or capital goods or contravenes any of the provisions of these rules in respect of any input or capital goods then all such goods shall be liable to confiscation and such person shall be liable to penalty not exceeding the duty on the excisable goods in respect of which any contravention has been committed, or ten thousand rupees whichever is greater.
• In a case, where the CENVAT Credit in respect of input or capital goods has been taken or utilised wrongly on account of fraud, wilful misstatement, collusion or suppression of facts or contravention of any of the provisions of the Excise Act, or the rules made thereunder with intention to evade payment of duty then, the manufacturer shall also be liable to pay penalty in terms of the provisions of Section 11AC of Central Excise Act.
• If any person takes CENVAT Credit in respect of input services wrongly or without taking reasonable steps to ensure that appropriate service tax on the said input service has been paid as indicated in the document accompanying the input services or contravenes any of the provisions of these rules in respect of any input service, then such person, shall be liable to a penalty which may extend to an amount not exceeding ten thousand rupees.
•  In a case, where the CENVAT Credit in respect of input services has been taken or utilised wrongly by reason of fraud, collusion, wilful misstatement, suppression of facts or contravention of any of the provisions of the Finance Act, or of the rules made thereunder with intention to evade payment of service tax then, the provider of output service shall also be liable to pay penalty in terms of Section 78 of the Finance Act.

Following judicial pronouncements are relevant in this regard -

In CCE & C, Surat I v. Chadarakanta Dyeing & Printing Mills 2010 (12) TMI 70 - GUJARAT HIGH COURT, it was held that rule 15 of Cenvat Credit Rules is invokable only when credit is taken or wrongly utilized on account of fraud, wilful misstatement, collusion or suppression of facts etc.

In CCE v. Sudarshan Cables Industries 2011 (8) TMI 895 - ALLAHABAD HIGH COURT ), it was held that there was conflicting opinion of Benches of Tribunal, due to which it could not be said that Cenvat credit had been wrongly taken or was taken in contravention of provision of rules. Rule 15 of Cenvat Credit, 2004 being subordinate legislation cannot impose penalty over and above penalty provided under Section 11AC of Central Excise Act, 1944. Accordingly no penalty was imposed in above case.

In CCE & Service Tax v. Bill Forge (P.) Ltd.2011 (4) TMI 969 - KARNATAKA HIGH COURT, it was held that assessee (manufacturer) had wrongly availed Cenvat credit on capital goods, but before credit was taken or utilized, mistake was brought to its notice assessee accepted the mistake and reversed the entry for the same, therefore there was no liability to pay interest under Section 11AB.

In CCE and Service Tax, LTU, Bangalore v. Bharat Electronics Ltd  2011 (3) TMI 512 - KARNATAKA HIGH COURT, it was held that Amendment though retrospective, penalty being penal in character cannot be retrospectively imposed, according to Rule 15 of Cenvat Credit Rules, 2004.

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