2014 (7) TMI 399 - AT - Central Excise

High Court Upholds Interest Demand & Penalty on Irregular Cenvat Credit

The Punjab and Haryana High Court upheld the demand for interest under Section 11AB of the Central Excise Act, 1944, on irregular Cenvat credit availed by ... Demand of interest and penalty - availment of ineligible Cenvat credit - Held that:- Appellant utilised the ineligible credit and, therefore, they are liable to pay the interest under Section 11AB of the Act, 1944 read with Cenvat Credit Rules, 2002. The decision of the Larger Bench of the Tribunal in the case of Machino Montel (I) Ltd. [2004 (4) TMI 101 - CESTAT, NEW DELHI] was overruled by the Hon'ble Punjab and Haryana High Court [2006 (7) TMI 23 - HIGH COURT OF PUNIAB & HARYANA (CHANDIGARH)]. Hence, the demand of interest is justified. Regarding the penalty - Held that:- It is seen that the appellant had availed ineligible credit on three occasions, which was detected by the audit party. The imposition of the penalty is justified - However, penalty is reduced - Decided partly in favour of assessee. Issues:Demand of interest and penalty on irregular Cenvat credit availed by the appellant.Analysis:The appellant, engaged in manufacturing machinery falling under Heading No. 84.39 of the CETA, availed irregular Cenvat credit on capital goods in December 2000, March 2001, and May 2002. The Central Excise audit party detected this in June 2003, leading to a Show Cause Notice in 2004. The adjudicating authority initially dropped proceedings based on a Tribunal ruling but the Revenue appealed. The Commissioner (Appeals) confirmed the demand of interest and imposed a penalty.The main contention from the appellant's counsel was that duty was paid before the Show Cause Notice, and all transactions were recorded in their Cenvat credit account, indicating no intention to evade duty. On the other hand, the Revenue argued that interest was due under Section 11AB of the Central Excise Act, 1944, and penalty was warranted for availing ineligible credit on multiple occasions.After reviewing the arguments and records, the judge found that the appellant utilized ineligible credit, making them liable for interest under Section 11AB of the Act and Cenvat Credit Rules. The Tribunal's decision in a previous case was overruled by the Punjab and Haryana High Court, justifying the interest demand. Regarding the penalty, it was noted that the appellant had availed ineligible credit thrice, as detected by the audit party, justifying the penalty imposition. The appellant's argument of excessive penalty was considered, leading to a reduction to &8377; 5,000.In conclusion, the judge upheld the interest demand and reduced the penalty to &8377; 5,000, disposing of the appeal in this manner.