2008 (4) TMI 127 - AT - Central Excise

Tribunal affirms Cenvat credit eligibility despite penalties, emphasizes procedural vs. substantive rights

The Tribunal upheld the appellant's eligibility for Cenvat credit, emphasizing that procedural irregularities should not bar substantive rights. Despite a ... Export under bond - Procedural mistake - It is not the department’s case that credit has been taken on ineligible inputs or capital goods or documents etc. - only objection is that the debit in the export document and bond account was made at 4% instead of 16% & therefore, the assessee had made a choice, so credit is deniable - this is only a procedural correction & substantive rights are not extinguished because of any procedural mistake – credit not deniable – penalty & interest not imposable Issues:1. Availing of benefit under Notification No. 3/01 dated 1-3-012. Export of watches and clocks without taking Cenvat credit3. Bond amount revision from 4% to 16%4. Show cause notice for irregularity in bond coverage during export5. Doctrine of merger in appeal against penalty6. Eligibility for Cenvat credit and procedural correctnessAnalysis:1. The appellant, engaged in the manufacture of various goods, availed the benefit of Notification No. 3/01 dated 1-3-01, which prescribed a duty rate of 4% ad valorem, subject to specific conditions. They exported watches and clocks without taking Cenvat credit initially, later revising the bond amount from 4% to 16%.2. A show cause notice was issued due to the irregularity in not covering the exported goods with an appropriate bond initially. The Commissioner's order emphasized that the substantive eligibility for Cenvat credit should not be denied due to minor procedural irregularities, imposing a penalty but allowing the credit retrospectively.3. The Tribunal considered the appeal against the penalty, noting the application of the doctrine of merger due to a prior Tribunal order. The respondent argued that the only irregularity was procedural, and eligibility for Cenvat credit existed if the correct procedure was followed.4. Despite the doctrine of merger, the Tribunal analyzed the case on merits. It was observed that the appellant could have debited 16% duty in the bond account for exports, enabling them to avail Cenvat credit. The issue was deemed a procedural correction, not extinguishing substantive rights.5. The Tribunal concluded that the appellant's eligibility for Cenvat credit, if the correct procedure was followed initially, resolved the main issue. Consequently, objections regarding penalty enhancement and interest levy were deemed irrelevant once the eligibility for Cenvat credit was established.This comprehensive analysis of the judgment highlights the key issues surrounding the availing of benefits under specific notifications, procedural irregularities in export documentation, and the doctrine of merger in appeal considerations, providing a detailed insight into the legal intricacies addressed by the Tribunal.