2016 (4) TMI 626 - AT - Central Excise

Tribunal overturns penalties for value rejection, grants relief on CENVAT credit denial.

The Tribunal allowed the appeals filed by Unit-II and Unit-I, setting aside the penalties imposed under Rule 26 & 27 for the rejection of value and ... Rejection of of value adopted by appellant and imposition of penalty under Rule 26 & 27 of Central Excise Rules 2002 - valuation adopted for removal of finished goods viz., M.S. Ingots was rejected on the ground that the appellant has not paid duty on CAS-4 value but paid duty on the market value which was slightly on the higher side - Held that:- Rules entitled the recipient manufacturer to avail of benefit of duty paid by supplier manufacturer and the quantum of duty already determined by jurisdictional officers of supplier unit cannot be contested or challenged by officers in charge of recipient unit. Even though Unit II and Unit I have the same jurisdictional officer, there was no proposal to reassess the clearance of Unit II and therefore, the Department has erred in denying the credit to Unit I. In view of the above, Rule 3(1) of the Cenvat Credit Rule allows credit of duty “paid” by the input manufacturer and not the duty payable by the said manufacturer. As such, the entire amount of duty, which the Appellant has taken credit, having been paid by the manufacturer/ supplier, who has not subsequently claimed any refund on account of reduction of assessable value of the inputs, the Appellant would be entitled to the entire Cenvat credit. Therefore, the impugned order is liable to be set aside. When the demand itself is not sustainable as brought out above, the question of payment of interest does not arise. Therefore, demand of interest in terms of Rule 14 of the CENVAT Credit Rules, 2004 read with Section 11AA of the Central Excise Act, 1944 is not sustainable. Since the duty demand is set aside, the various penalties viz. penalty under Rule 15(2) of CER, 2004 read with see 11 AC, Rule 26 & Rule 27 is set aside. Issues Involved:1. Rejection of value adopted by the appellant and imposition of penalty under Rule 26 & 27 of Central Excise Rules, 2002.2. Denial of CENVAT credit.Issue-wise Detailed Analysis:1. Rejection of Value and Imposition of Penalty:The appellants, M/s. Ran India Steels Pvt. Ltd., Unit-II, were engaged in the manufacture of MS Ingots and transferred the entire production to their Unit-I for captive consumption. The duty was paid based on the market value, which was higher than the CAS-4 certificate value. The adjudicating authority issued Show Cause Notices (SCNs) alleging excess credit transfer and imposed penalties under Rule 26 & 27. The Commissioner (Appeals) upheld these orders, leading to the present appeals.The Tribunal noted that the valuation adopted by the appellant was based on market value due to delayed receipt of the CAS-4 certificate. The Tribunal observed that the duty paid was higher than required, resulting in no revenue loss. The self-assessment by the appellant was final, and there was no reassessment by the lower authority. The Tribunal emphasized that the entire transaction was revenue-neutral since Unit-I took credit and paid duty on the finished products. The Tribunal concluded that the imposition of penalties under Rule 26 & 27 was unjustified as there was no contravention of rules or malafide intention. The Tribunal cited relevant case laws supporting the appellant's position, including CCE Pondicherry Vs Jeevan Diesels & Electricals Ltd. and others.2. Denial of CENVAT Credit:The Commissioner of Central Excise, Salem, denied CENVAT credit to Unit-I based on the alleged excess credit passed from Unit-II. The adjudicating authority ordered recovery of the ineligible credits with interest and equivalent penalty under Rule 15 (2) of CER 2004 read with Section 11AC of the Act.The Tribunal held that the denial of input credit was not justified as the goods were received under valid central excise invoices and used in the manufacture of finished goods. The Tribunal reiterated that Rule 26 cannot be invoked in this case as the goods were transferred for captive consumption. The Tribunal cited several decisions, including CCE Vs Purity Flexpack Ltd. and Parasrampuria Synthetics Ltd. Vs CCE Jaipur, supporting the appellant's entitlement to credit based on duty paid invoices.The Tribunal emphasized that the assessment of goods and payment of duty is a matter between the manufacturer and the Central Excise authorities. Since there was no reassessment by the authorities, credit could not be denied at Unit-I. The Tribunal concluded that the demand for recovery of credit and imposition of penalties was unsustainable.Conclusion:The Tribunal set aside the impugned orders, allowing the appeals filed by Unit-II and Unit-I. The Tribunal held that the penalties under Rule 26 & 27 were not justified, and the denial of CENVAT credit was incorrect. The Tribunal emphasized the revenue-neutral nature of the transaction and the absence of any violation of rules by the appellant. The Tribunal granted consequential relief to the appellants.