2007 (6) TMI 535 - AT - Central Excise

Revenue appeal rejected for penalties on Cenvat credit misuse. Precedent followed on duty payment before notice.

The appeal by the Revenue challenging the setting aside of penalties imposed on the respondents for availing Cenvat credit on damaged inputs and claiming ... - Issues Involved:- Appeal against setting aside of penalties imposed on the respondents for availing Cenvat credit on damaged inputs and claiming insurance.- Discharge of entire duty liability and interest before the issuance of show cause notice.- Applicability of penalty under Rule 15 of Cenvat Credit Rules, 2004.Analysis:Issue 1: Appeal against setting aside of penaltiesThe appeal was filed by the Revenue challenging the Order-in-Appeal that set aside penalties imposed on the respondents for availing Cenvat credit on damaged inputs and subsequently claiming insurance. The Commissioner (Appeals) found that the respondents had indeed availed Cenvat credit on defective inputs and claimed insurance for them. However, the respondents had discharged the entire duty liability and interest before the issuance of the show cause notice. The Commissioner (Appeals) relied on a larger bench decision which stated that when duty is paid before the issue of a show cause notice, the imposition of interest and penalty does not arise. The Commissioner (Appeals) upheld the duty demand and recovery of interest but set aside the penalty under Rule 15 of Cenvat Credit Rules, 2004.Issue 2: Discharge of entire duty liability and interestIt was noted that the respondents had availed Cenvat credit on Porcelain Insulators, which were later found to be damaged. Upon discovering this, the respondents debited the entire amount and paid the duty along with interest before the show cause notice was issued. The Commissioner (Appeals) acknowledged that the duty had been paid before the notice, which aligned with the legal precedent and led to the setting aside of the penalty.Issue 3: Applicability of penalty under Rule 15 of Cenvat Credit Rules, 2004The adjudicating authority had initially imposed a penalty equivalent to the duty amount. However, the Commissioner (Appeals) set aside this penalty based on the precedent that when duty is paid before the issuance of a show cause notice, the penalty under Rule 15 of Cenvat Credit Rules, 2004 is not applicable. The Commissioner (Appeals) correctly followed the legal principles established by the Tribunal and the High Court, leading to the rejection of the Revenue's appeal.In conclusion, the appeal by the Revenue was rejected based on the findings that the respondents had discharged their entire duty liability and interest before the show cause notice was issued, in accordance with legal precedents and decisions. The penalty under Rule 15 of Cenvat Credit Rules, 2004 was rightly set aside, while the duty demand and interest recovery were upheld.