2016 (6) TMI 401 - AT - Central Excise

Appellate Tribunal overturns penalty for delayed credit reversal, citing lack of intent to evade duty payment.

The Appellate Tribunal CESTAT New Delhi allowed the appeal filed by the appellant, setting aside the penalty imposed under Section 11 AC read with Rule ... Imposition of penalty under the Central Excise Act for erroneous Cenvat credit - Applicability of extended period under Section 11A(2B) of the Central Excise Act, 1944 - Reversal of Cenvat credit and payment with interest as a defence to penaltyImposition of penalty under the Central Excise Act for erroneous Cenvat credit - Reversal of Cenvat credit and payment with interest as a defence to penalty - Whether penalty imposed for non-reversal of Cenvat credit was sustainable where the assessee reversed the credit and paid interest after audit and before issuance of show cause notice. - HELD THAT: - The Tribunal accepted the appellant's case that the failure to reverse the credit initially taken on supplementary invoices was an omission arising from credits having been availed on two occasions and not due to malafide intent to evade duty. The admitted facts show that the amount and interest were paid by the appellant immediately after the audit pointed out the error and well before issuance of the show cause notice. On these facts the Tribunal held that proceedings for penalty were not warranted. The reasoning rests on the absence of fraud, collusion or mala fide conduct and on the fact that the statutory purpose of penal provisions is not served when the shortfall is rectified with interest prior to adjudicatory action.Penalty set aside; impugned order unsustainable insofar as penalty is concerned.Applicability of extended period under Section 11A(2B) of the Central Excise Act, 1944 - Reversal of Cenvat credit and payment with interest as a defence to invocation of extended period - Whether issuance of show cause notice after nearly three years, invoking the extended period under Section 11A(2B), was justified where the assessee had already paid the amount with interest following audit. - HELD THAT: - The Tribunal found that the show cause notice was issued almost three years after the audit and after the appellant had paid the disputed amount with interest. In these circumstances the Tribunal concluded that no proceedings by way of notice were required under Section 11A(2B). The factual matrix-payment of the amount with interest before issuance of notice and lack of any mala fide-led to the conclusion that invoking the extended period for demand was not appropriate in the case at hand.Show cause notice invoking extended period under Section 11A(2B) was not required; reliance on extended period in this case is unjustified.Final Conclusion: Appeal allowed in part: the penalty imposed on the appellant is quashed and the invocation of the extended period for issuance of the show cause notice is held unjustified; other aspects of the original demand (appropriation of amount paid) are not disturbed. Issues involved:- Demand and recovery of cenvat credit along with interest- Imposition of penalty under Section 11 AC read with Rule 15(2) of the Cenvat Credit Rules, 2004- Appeal against the order confirming the demand and penaltyAnalysis:Issue 1: Demand and recovery of cenvat credit along with interestThe appellants, engaged in the manufacture of strips and wires of aluminium and copper, availed cenvat credit on duty paid inputs during the period April 2007 to March 2008. They initially took credit based on invoices and later additional credit based on supplementary invoices. The inputs cleared as such were paid duty equivalent to the initial credit taken. However, the credit based on supplementary invoices was not reversed initially, leading to a demand for recovery along with interest. The appellant reversed the amount with interest after an audit pointed out the error.Issue 2: Imposition of penalty under Section 11 AC read with Rule 15(2) of the Cenvat Credit Rules, 2004A show cause notice was issued to demand the amount along with interest, and the Original Authority confirmed the demand, imposed a penalty equal to the duty, and the Commissioner (Appeals) upheld the decision. The appellant challenged the penalty imposition, arguing that the reversal of credit with interest was made promptly after the audit highlighted the oversight. They contended that there was no malafide intent, and the error occurred due to a clerical mistake while reversing the credit. The appellant sought closure under sub-section (2B) of Section 11 A of the Central Excise Act, 1944, asserting that the delayed show cause notice was unjustified.Issue 3: Appeal against the order confirming the demand and penaltyThe appellant appealed against the order confirming the demand and penalty, primarily contesting the penalty imposition. The appellant's counsel argued that no element of fraud or collusion could be alleged, and relied on legal precedents to support their case for non-imposition of penalty. The Revenue strongly opposed the appellant's plea, asserting that the penal provisions were applicable due to the appellant's failure to follow legal provisions regarding payment equivalent to the credit taken.In the judgment, the Member (Technical) noted that the appellant had cleared inputs as such on which cenvat credit was availed, initially and based on supplementary invoices. The appellant paid an amount equal to the credit taken for the first time but omitted to consider the credit from supplementary invoices. The Member found that the omission was not intentional to avoid duty payment, and as the amount with interest was paid promptly after the audit, no further proceedings were required under sub-section (2 B) of Section 11A. The show cause notice issued after three years invoked an extended period for demanding the amount, which was already paid by the appellant. Consequently, the judgment held that the penalty imposition was not sustainable, and the appeal was allowed on that ground.This detailed analysis of the judgment highlights the issues of demand and recovery of cenvat credit, imposition of penalty, and the appeal outcome, providing a comprehensive understanding of the legal proceedings and decision rendered by the Appellate Tribunal CESTAT New Delhi.