Appellate Tribunal Overturns Penalty for Improper Cenvat Credit, Upholds Appeal Without Predeposit

The Appellate Tribunal considered the penalty for irregular availment of Cenvat credit under Rule-9(1) of the Cenvat Credit Rules, 2004. The duty payment was already made by the appellants, with only a penalty remaining. The appeal proceeded without predeposit of the penalty amount. The appellants had availed Cenvat credit using xerox copies of bills of entry, leading to penalty imposition. Despite no mens rea, the penalty was upheld due to a technicality. The Tribunal set aside the penalty, allowing the appeal to that extent.

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During Sept. 2003-Nov. 2004 the appellants availed Cenvat credit of Additional Duty of Customs (CVD) on imported goods using xerox copies of bills of entry. The department, invoking Rule 9(1) of the Cenvat Credit Rules, 2004 (which prescribes the triplicate copy of bill of entry), issued a show-cause notice proposing recovery of credit and imposition of penalty; the original and first appellate authorities confirmed duty recovery and imposed a penalty equal to duty (Rs. 35,798). The duty amount was paid and the appellants abandoned their claim to the credit. No mens rea was attributed by the lower authorities. The appellate bench dispensed with predeposit of the penalty and, observing that the irregularity was procedural and that "but for the above procedural defect, they would have been entitled to the benefit," held that it would be harsh to penalise the party. The penalty imposed is set aside and the appeal is allowed to that extent.

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