Appeal allowed, penalty set aside for non-reversal of CENVAT credit under compounded levy scheme.

The Tribunal allowed the appeal, setting aside the penalty imposition for non-reversal of CENVAT credit on capital goods under a compounded levy scheme. The Appellant's compliance with duty payment upon audit objection was emphasized, leading to the judgment in favor of the Appellant on 11/04/2019.

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Issues:
1. Duty demand for non-reversal of CENVAT credit on capital goods under compounded levy scheme.
2. Applicability of CENVAT credit rules to units under compounded levy scheme.
3. Challenge to penalty imposition for non-reversal of CENVAT credit.
4. Interpretation of rules regarding CENVAT credit on capital goods.
5. Justification for non-invocation of extended period for penalty.
6. Statutory audit procedures and its relevance in the case.

Analysis:
1. The case involved a duty demand of &8377; 4,65,476 for not reversing CENVAT credit on 18 packing and levelling Machines after the introduction of a compounded levy scheme. The Appellant had availed CENVAT credit before the scheme's implementation, leading to the demand for duty, interest, and penalty.

2. The Appellant argued that the CENVAT credit rules were not applicable to units under the compounded levy scheme, emphasizing the wide scope of "in relation to notified goods." The argument was supported by Rule 16(1) and Sub Rule - 7, which restricted CENVAT credit on specific goods, excluding capital goods.

3. The Appellant contested the penalty imposition, claiming no fraud or intentional misstatement, as the removal of machines was voluntarily reported to the department. Legal precedents were cited to support the argument against invoking the extended period for penalty imposition.

4. The Tribunal analyzed Rule 16 and concluded that CENVAT credit on capital goods was not permissible after a certain date, and the CENVAT credit rules did not apply to notified goods, such as manufacturing tobacco. The Tribunal rejected the argument that notified goods excluded manufacturing machines, emphasizing the legislative intent behind the rules.

5. Regarding the penalty, the Tribunal considered the statutory audit procedures, highlighting that the audit aimed to ensure tax compliance and discuss issues with the assessee. The Tribunal found no evidence of malafide intent or suppression of duty liability by the Appellant.

6. Ultimately, the Tribunal allowed the appeal, setting aside the Commissioner of Appeal's order and emphasizing the Appellant's compliance with duty payment upon audit objection. The judgment was pronounced in open court on 11/04/2019.

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