Penalty set aside for irregular credit availing without duty determination

The Tribunal set aside the penalty imposed on the appellants for irregularly availing credit on capital goods without a determination of duty in the show cause notice. The penalty was deemed unsustainable as there was no evidence of intentional wrongdoing or determination of duty. The Tribunal upheld the recovery of interest but modified the order by removing the penalty, citing that without a demand of duty, penalty under section 11AC was not applicable. The appeal was partly allowed with consequential reliefs granted.

---

---

Issues:
Challenge against penalty imposition without demand of duty in show cause notice.

Analysis:
The appellants, manufacturers of Bright Bars and Bolts, were found to have taken 100% credit on capital goods for a specific period, contrary to the Cenvat Credit Rules, 2004. A show cause notice was issued for recovery of interest and imposition of penalty. The adjudicating authority ordered recovery of interest and imposed a penalty equal to the irregularly availed credit amount. The Commissioner (Appeals) upheld the decision, leading to the current appeal.

During the hearing, the appellant challenged the penalty imposition, arguing that as there was no demand of duty in the show cause notice, the penalty was unsustainable. The appellant's counsel relied on the judgment in Ispat Industries Ltd Vs CCE, Raigad to support this argument. On the other hand, the AR contended that the penalty was justified due to the violation of credit availing conditions.

The Tribunal analyzed the case and noted that the show cause notice only demanded interest, not duty. Since the appellants were eligible for credit in the subsequent year, the penalty imposition without a determination of duty was deemed unsustainable. The penalty was imposed under Rule 15 of CCR, 2004 r/w section 11AC of the Central Excise Act, 1944. However, without evidence of intentional wrong availing of credit or determination of duty, the penalty was deemed unjustified. The Tribunal cited the Ispat Industries Ltd case, emphasizing that without a determination of duty, penalty under section 11AC was not applicable.

Consequently, the Tribunal modified the impugned order by setting aside the penalty but upheld the demand for interest. The appeal was partly allowed with any consequential reliefs.

---