Tribunal Upholds Disallowance of Cenvat Credit on Capital Goods

The Tribunal upheld the disallowance of credit for availing 100% Cenvat credit on capital goods from a sister unit without considering depreciation. The appeal against the credit disallowance was dismissed. Penalties imposed on the appellant and the Vice President for failure to disclose the credit availed were set aside.

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Issues:
Allegation of availing 100% Cenvat credit on capital goods from sister unit in the same financial year without considering depreciation on old goods.

Analysis:
The appellant was accused of availing full Cenvat credit on old and used capital goods received from a sister unit in the same financial year, contrary to the prescribed 50% credit under Rule 4(2)(a) of the Cenvat Credit Rules 2004. The supplier unit did not clear the goods at a depreciated value as required by Rule 3(5) of the Credit Rules, resulting in the appellant availing surplus credit. Upon objections, the appellant reversed the credit with interest. The department alleged suppression of facts to evade duty, leading to a Show Cause Notice and subsequent order disallowing credit, imposing penalties, and confirming interest liabilities. The appellant argued Rule 10 of the Cenvat Credit Rules allowed credit utilization when lying unutilized, but the department contended Rule 10 was irrelevant in this case. The Tribunal upheld the department's findings, stating Rule 10 did not apply as the goods were transferred to a sister unit, not due to factory relocation as per Rule 10. The appellant's failure to substantiate their credit availing as per law led to the dismissal of their appeal against the credit disallowance.

The department accused the appellant of not disclosing the credit availed, claiming suppression of facts. Penalties were imposed under Rule 15 read with 11AC, along with a separate penalty on the Vice President under Rule 26 of the Central Excise Rules. However, the appellant had reversed the credit and paid interest before the show cause notice issuance. The appellant argued that as per Section 11A(2B), no notice should be served when duty is paid, rendering the penalties unjustified. The Tribunal agreed, setting aside the penalties imposed on the appellant and the Vice President. The impugned order was modified to exclude the penalties, partially allowing the appeals in favor of the appellant.

In conclusion, the Tribunal upheld the disallowance of credit for availing 100% Cenvat credit on capital goods from a sister unit without considering depreciation, dismissed the appeal against the credit disallowance, and set aside the penalties imposed on the appellant and the Vice President for failure to disclose the credit availed.

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