2018 (11) TMI 457 - AT - Central Excise

Tribunal overturns Commissioner's decision, manufacturer wins appeal on tax penalties.

The Tribunal ruled in favor of the appellant, setting aside the impugned order by the Commissioner (Appeals) and allowing the appeal. The appellant, a ... Penalty u/r 15 of CENVAT Credit Rules and 27 of Central Excise Rules 2002 - CENVAT Credit - inclusion of cylinder charges in assessable value - Held that:- The Commissioner (A) has observed that the appellant has declared the stock of inputs and the RO had caused necessary verification after the assessee cross the exemption limit, the allegation that the credit is irregular cannot be sustained - Once the allegation of irregular credit is not sustained then the confirmation of duty is not tenable in law. Further, the appellants have maintained proper records which were shown to the Department and all the questions of the Department were answered by the appellant with documentary evidence of the records - credit rightly availed. Appeal allowed - decided in favor of appellant. ISSUES PRESENTED AND CONSIDERED 1. Whether non-inclusion of cylinder charges collected from customers in assessable value, subsequently paid with interest before issuance of show cause notice, justified imposition of penalty. 2. Whether availment of CENVAT credit on inputs held in stock upon crossing SSI/exemption threshold, when intimations to the Department were given and records (including digital records) were produced and verified, amounted to irregular availment attracting recovery and penalty under Rule 15(2) of the CENVAT Credit Rules and Section 11AC (and Rule 27 of Central Excise Rules). 3. Whether failure to maintain/produce physical records (where digital records and documentary evidence were produced and departmental verification occurred) justified confirmation of duty and imposition of penalties for non-maintenance of records. ISSUE-WISE DETAILED ANALYSIS - Non-inclusion of cylinder charges and penalty for non-declaration Legal framework: Assessable value must include components like cylinder charges if they form part of consideration; duty liability arises when assessable value is understated. Penalty provisions permit imposition where statutory defaults are established. Precedent Treatment: No precedent was cited or relied upon in the impugned order or in the appeal; the Tribunal's reasoning is based on statutory principles and facts on record. Interpretation and reasoning: The Tribunal found the omission to be admitted by the assessee who, however, paid the duty and interest on the cylinder charges well before issuance of the show cause notice. The Court treated voluntary and timely payment as material in assessing culpability and the appropriateness of penalty. The factual finding that payment preceded the SCN supports a conclusion of absence of deliberate concealment. Ratio vs. Obiter: Ratio - where duty shortfall is voluntarily rectified with interest prior to initiation of adjudicatory proceedings, imposition of penalty for that omission is not automatically justified; factual context of voluntariness bears on penalty application. No separate obiter on other hypothetical scenarios was made. Conclusion: The Tribunal accepted the payment of duty and interest made prior to SCN as mitigating; though duty confirmation stood, the circumstances weigh against upholding penalty solely for non-inclusion in value when corrected voluntarily. ISSUE-WISE DETAILED ANALYSIS - Regularity of CENVAT credit availment and applicability of Rule 15(2) penalty Legal framework: CENVAT credit can be availed on inputs used in manufacture of dutiable goods after exemption threshold is crossed; bona fide availment requires maintenance of records and ability to substantiate that inputs were on hand and utilized post-threshold. Rule 15(2) of CCR permits penalty/recovery for irregular availment of credit. Precedent Treatment: The impugned order treated availment as irregular; Commissioner (Appeals) and the Tribunal examined departmental verification and communications. No case law was applied by either side in the record. Interpretation and reasoning: The Tribunal placed weight on documentary evidence that the assessee had intimated crossing of the exemption limit to authorities, produced records (including digital records), and that departmental officers had visited and verified stocks - although the departmental inspection report was not furnished to the assessee or placed on record. The Commissioner (Appeals) found that declaration of input stock and verification by Range Officer negated the allegation of irregular credit. The Tribunal agreed, reasoning that once irregularity of credit is not established by cogent departmental evidence, confirmation of duty and imposition of penalty cannot be sustained. The absence of a formal adverse inspection report in the record undermined the original adjudicatory finding. Ratio vs. Obiter: Ratio - availment of CENVAT credit on pre-existing inputs after crossing exemption limit is not irregular where the assessee has contemporaneous intimations to authorities, produced verifiable records (including digital), and departmental verification occurred without adverse findings recorded; in such circumstances recovery/penalty under Rule 15(2) cannot be sustained. Observational/obiter - emphasis that lack of production of inspection report is a significant lacuna affecting the department's case. Conclusion: The Tribunal set aside findings of irregular credit and consequent penalties under Rule 15(2) (and connected Rule 27) because the material on record showed intimation, production of records, and departmental verification; absence of departmental adverse report rendered the allegation unsustainable in law. ISSUE-WISE DETAILED ANALYSIS - Maintenance and production of records Legal framework: Statutory schemes require maintenance of prescribed records and production thereof on demand; failure to maintain records can attract penalties where non-maintenance is established. Precedent Treatment: No prior decisions were cited; the adjudication turned on factual sufficiency of records produced and the form (digital v. physical) in which they were maintained. Interpretation and reasoning: The Tribunal accepted that records were maintained in digital form and were produced to departmental officers during verification. The adjudicating authority's adverse finding on non-maintenance was contradicted by evidence of production and by the Commissioner (Appeals)'s finding that records were shown and verification occurred. The Tribunal emphasized that mere preference for physical over digital form is not a ground to sustain penalty where digital records were available and relied upon by the assessee and where department personnel had access during inspection. Ratio vs. Obiter: Ratio - a finding of non-maintenance of records is not sustainable where the assessee has maintained and produced digital records and those records were made available to departmental officers during verification; absence of an adverse inspection report weakens any contrary finding. Obiter - the desirability of contemporaneous inspection reports being placed on record for robust adjudication. Conclusion: The Tribunal held that the penalty for non-maintenance of records could not be sustained given the documentary production and departmental access to records; this supported the setting aside of connected penalties. OVERALL CONCLUSION AND RELIEF The Tribunal allowed the appeal, set aside the impugned order insofar as it confirmed irregular CENVAT credit and imposed penalties under Rule 15(2) and Rule 27, and granted consequential relief. The Tribunal treated voluntary pre-SCN payment of duty with interest and contemporaneous production/intimation of records as determinative of the impropriety of sustaining penalties in the circumstances. The Court's decision is based on factual findings about payment timing, intimation/verification, and absence of adverse departmental report rather than on any new legal precedent.