2010 (8) TMI 765 - AT - Central Excise

Appellate Tribunal grants relief on penalty for erroneous tax credit

The Appellate Tribunal CESTAT, NEW DELHI allowed the appeal, ruling that the imposition of a mandatory penalty under Section 11AC was not warranted for ... Cenvat credit - Import of inputs and components and moulds and took credit of special additional duty of customs paid at 4% ad valorem on the imported goods - When the officers visited the factory and pointed out that they were not eligible for the credit of special additional duty, the appellants promptly reversed the credit and paid the interest – Held that:- In view of nomenclature of the levy of additional duties in lieu of sales tax and local levies being “additional duties” they have taken credit bona fidely as they believed that all additional duties were eligible as credit - details of credit taken were furnished by them in the returns submitted by them - no mala fide in the conduct of the appellants - question of invoking the provisions of Section 11AC to impose a mandatory penalty does not arise - appeal is allowed Issues:- Appeal against order of Commissioner (Appeals) dated 25-2-2008 regarding imposition of penalty for irregular availment of credit of special additional duty of customs and service tax.- Whether the appellants were eligible to take credit of special additional duties.- Imposition of penalty under Section 11AC.- Applicability of Section 11A(2B) and the decision in UOI v. Rajasthan Spinning & Weaving Mills.Analysis:The appeal before the Appellate Tribunal CESTAT, NEW DELHI concerned the imposition of penalties for irregular availment of credit of special additional duty of customs and service tax by the appellant, following a visit by officers to their factory on 1-11-2006. The officers pointed out that the appellant was not eligible for the credit, leading to the reversal of credit and payment of interest. A show cause notice was issued on 18-5-07, alleging irregular availment of credit and proposing a demand of duty and penalty. The original authority confirmed the demand and imposed penalties, which were partially upheld by the Commissioner (Appeals), prompting the appellant's appeal against the penalty imposition.The appellant contended that the mistaken credit was due to a misunderstanding, believing that all additional duties paid were admissible as cenvat credit. They promptly rectified the mistake upon being informed, paying the duty and interest. The appellant argued that since the credit was taken under a bona fide belief, the show cause notice should not have been issued, and the penalty imposition was unwarranted.The Department, represented by the Learned DR, supported the Commissioner (Appeals) order, emphasizing that penalties were necessary even if the amount was deposited before the show cause notice due to the recurring nature of the evasion. Reference was made to the decision in UOI v. Rajasthan Spinning & Weaving Mills to justify the penalty imposition.After considering the submissions and records, the Tribunal acknowledged that the appellants were not entitled to the credit of special additional duties. However, it accepted the appellant's argument that the credit was taken in good faith based on the nomenclature of the duties. The Tribunal found no mala fide intent in the appellant's conduct and deemed the case suitable for refraining from issuing a show cause notice under Section 11A(2B). Consequently, the Tribunal allowed the appeal, ruling that the imposition of a mandatory penalty under Section 11AC was not warranted, distinguishing the facts from the decision in Rajasthan Spinning & Weaving Mills.In conclusion, the Tribunal allowed the appeal and granted consequential relief to the appellant in accordance with the law.