Cenvat credit on final products denied; penalty limited to the minimum where no fraud or suppression was alleged.
Cenvat credit was inadmissible on bed sheets and blankets because they were themselves final products and were not used in or in relation to manufacture of the appellant's final products; the plea based on removal of inputs as such and the textile-sector notification did not assist, so disallowance and recovery of credit were upheld. As the show cause notice did not allege fraud, wilful misstatement, collusion, or suppression of facts, the harsher penalty regime was inapplicable; penalty was therefore confined to the lesser provision for wrong availment and reduced to the minimum prescribed amount of Rs. 10,000.
Issues: (i) Whether Cenvat credit taken on bed sheets and blankets was admissible when those goods were themselves final products and were not used in or in relation to manufacture of the appellant's final products. (ii) Whether the penalty should be sustained at the reduced amount or further reduced in the absence of any allegation of fraud, wilful misstatement, collusion, or suppression of facts.
Issue (i): Whether Cenvat credit taken on bed sheets and blankets was admissible when those goods were themselves final products and were not used in or in relation to manufacture of the appellant's final products.
Analysis: Cenvat credit is available only in respect of inputs used in or in relation to manufacture of the final product, and Rule 3(4) applies to removal of inputs as such. The record showed that the goods on which credit was taken were bed sheets and blankets, were not used for any manufacturing activity by the appellant, and were themselves final products. They therefore did not answer the definition of inputs, and the plea based on removal of goods as such or the textile-sector notification did not assist the appellant.
Conclusion: The disallowance and recovery of Cenvat credit were and are upheld.
Issue (ii): Whether the penalty should be sustained at the reduced amount or further reduced in the absence of any allegation of fraud, wilful misstatement, collusion, or suppression of facts.
Analysis: The show cause notice did not allege any guilty mind, so the case did not attract the harsher penalty provision for fraud or suppression. Penalty could therefore be imposed only for wrong availment under the lesser penalty provision. Since the wrongly availed credit had been reversed, a minimum penalty was considered sufficient to meet the ends of justice.
Conclusion: The penalty was reduced to the minimum prescribed amount of Rs. 10,000.
Final Conclusion: The credit disallowance was maintained, but the penalty was brought down to the minimum level, so the appellant obtained only limited relief.
Ratio Decidendi: Cenvat credit cannot be taken on goods that are themselves final products and are not used as inputs in or in relation to manufacture, and in the absence of allegations of fraud or suppression, penalty must be confined to the lesser statutory regime applicable to wrong availment.
TaxTMI 
AI Drafter ✕
TaxTMI 
