2013 (12) TMI 1392 - AT - Central Excise

Tribunal overturns penalty for credit reversal under Central Excise Act; no mala fide intent found

The Tribunal set aside the penalty imposed on the appellant for the short reversal of credit under Section 11AC of the Central Excise Act. Despite ... Penalty u/s 11AC of Central Excise Act r.w. Rule 15 of the Cenvat Credit Rules and Rule 25 of the Central Excise Rules – Reversal under Rule 3(5) of Cenvat Credit Rules, 2004 - Held that:-Commissioner has imposed penalty on the ground simplicitor that there has been procedural and technical violation of the Rules, even though he has held that there was no intention on the part of the assessee to do so – the detection of mistake was by the assessee himself - penal provisions are relatable to mala fide intention of the assessee, who is being penalized - As such it has to be first seen as to whether the provisions of Section 11AC are invocable or not – Following Union of India v. Rajasthan Spinning & Weaving Mills [2009 (5) TMI 15 - SUPREME COURT OF INDIA] - Section 11AC of Central Excise Act is not applicable to every case of non-payment or short-payment of duty - Conditions mentioned in Section 11AC should exist for imposition of penalty thereunder - the Commissioner has himself held that there is no mala fide on the part of assessee, thus, there was no reason to uphold the imposition of penalty upon the appellant – penalty imposed upon the assessee set aside – Decided in favour of Assessee. Issues:Challenges to imposition of penalty under Section 11AC of Central Excise Act, read with Rule 15 of the Cenvat Credit Rules and Rule 25 of the Central Excise Rules.Analysis:The appellant, engaged in manufacturing motorcycles and parts, availed Cenvat credit on duty paid parts. They were required to reverse credit at the time of clearance to vendors for further manufacture, as per Rule 3(5) of Cenvat Credit Rules, 2004. A software system was used for reversal, but due to a system problem, full credit was not reversed, leading to shortages. The appellant detected the issue, calculated the differential amount, reported it to authorities, and paid the short amount with interest. The vendors utilized the credit for duty payment on manufactured products.The appellant contended that the short reversal was due to a system problem, not mala fide, and they voluntarily rectified the error, paying interest of around 55 lakhs. They argued that penalty under Section 11AC should only apply in cases of mala fide, citing decisions supporting this view. The Commissioner acknowledged no mala fide on the appellant's part. The Department argued that the discrepancy was detected by an audit team, implying it might have gone unnoticed otherwise, supporting the penalties imposed.The Tribunal found that the appellant reported the discrepancy in their statutory return before being directed by the audit team. They concluded there was no intention to reverse credit improperly, as the credit was available to vendors, making the situation revenue neutral. The Commissioner's findings favored the appellant, stating no fraud or suppression of facts occurred, and extended limitation period did not apply.Regarding penalties, the Commissioner held that penalties can apply for technical violations, even without intention, citing legal precedents. However, the Tribunal disagreed, stating penal provisions require mala fide intention, as per Supreme Court rulings. Since the Commissioner acknowledged no mala fide on the appellant's part, the Tribunal set aside the penalty while upholding the amount already deposited by the appellant with interest. Both appeals were allowed in favor of the appellant.