Appellate authority upholds penalty for cenvat credit non-reversal in transformer manufacturing

The appellate authority upheld the penalty imposed on the appellant for not reversing the cenvat credit on repair inputs used in transformer manufacturing. The penalty amount was initially set at Rs. 2,36,148 due to exportation of repaired transformers. Despite the confusion surrounding the duty payment on repaired transformers, the penalty under Section 11AC of the Cenvat Credit Rules 2004 was not waived. However, the authority reduced the penalty to 25% of the demanded amount, citing relevant legal precedents and circulars, thereby partially allowing the appeal.

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Issues:
1. Demand of cenvat credit, penalty, and interest on inputs used in repairing transformers.
2. Waiver of penalty under Section 11AC of Cenvat Credit Rules 2004.
3. Application of the first proviso to Section 11AC for reducing penalty.

Analysis:
1. The appellant, engaged in transformer manufacturing, received old transformers for repair using inputs with cenvat credit. Although the repaired transformers were cleared without duty payment, the appellant did not reverse the cenvat credit on the repair inputs. The revenue demanded cenvat credit, penalty, and interest initially at Rs. 78,26,657, later reduced to Rs. 2,36,148 due to exportation of repaired transformers.

2. The appellant did not contest the duty demand and interest but sought waiver of the penalty under Section 11AC. The appellant argued that confusion led to not reversing the credit on repair inputs, as they previously discharged excise duty on repaired transformers but changed the procedure. The appellant claimed no mala fide intention due to the ambiguity in clearing repaired transformers with or without duty payment.

3. The Revenue upheld the penalty, and the appellate authority considered the extended period from 2006-07 to 2008-09 for invoking Section 11AC. The authority found suppression of facts, citing the Union of India Vs. Dharmendra Textile Processors judgment. While the penalty could not be waived, the authority noted the absence of granting the 25% benefit as per the first proviso to Section 11AC. Referring to Board Circular No.208/07/2008-CX-6 and the Commissioner of C. Ex. & Customs Vs. R.A. Shaikh Paper Mills P. Ltd. case, the authority reduced the penalty to 25% of Rs. 2,36,148, invoking the proviso of Section 11AC and partially allowing the appeal.

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