Appellant's Compliance Upheld, Demand for Penalty Overturned

Emami Limited Versus C.C.E & S.T. -Valsad

Emami Limited Versus C.C.E & S.T. -Valsad - TMI Issues Involved:
1. Reversal of Cenvat Credit on Common Input Services.
2. Demand of 10%/6%/5% of the Value of Exempted Goods.
3. Time Barred Demand and Suppression of Facts.

Summary:

1. Reversal of Cenvat Credit on Common Input Services:
The appellant, engaged in manufacturing both dutiable and exempted goods, availed Cenvat credit on common input services. During an audit, it was observed that the appellant availed Cenvat credit on services used for both dutiable and exempted goods. Consequently, the appellant was directed to reverse the proportionate Cenvat credit of Rs. 30,68,062/-, which they complied with along with interest payment of Rs. 8,01,333/-. The appellant filed an intimation under Section 11A (2B) of the Central Excise Act, 1944, requesting the closure of the audit objection without issuing any show cause notice for imposing a penalty. However, the department issued a letter directing the appellants to pay a penalty under Section 11A (5) of the Central Excise Act, 1944, for irregular availment of Cenvat credit.

2. Demand of 10%/6%/5% of the Value of Exempted Goods:
Despite the appellant's reversal of the proportionate Cenvat credit, a show cause notice was issued demanding Rs. 2,39,37,225/- (10%/6%/5% of the value of exempted goods) and proposing to appropriate the credit already reversed. The adjudicating authority confirmed the entire demand. The appellant argued that the demand under Rule 6(3) of the Cenvat Credit Rules, 2004, is unsustainable once the proportionate Cenvat credit is reversed along with interest. The tribunal held that the reversal of Cenvat credit along with interest makes the situation as if no Cenvat credit was availed, thus the demand of 10%/6%/5% cannot be sustained.

3. Time Barred Demand and Suppression of Facts:
The appellant contended that the demand is time barred as there was no suppression of facts. The tribunal agreed, noting that the issue of reversal of Cenvat credit under Rule 6(3) is contentious and has been subject to various judgments. Therefore, it cannot be said that the appellant had a mala fide intention to evade payment of duty. The demand for the extended period was held to be hit by limitation, and penalties imposed were deemed unsustainable.

Conclusion:
The tribunal concluded that the appellant's reversal of proportionate Cenvat credit along with interest is sufficient compliance under Rule 6(3). The demand of 10%/6%/5% of the value of exempted goods was set aside. The case was remanded to the adjudicating authority for verification of the correctness of the actual Cenvat credit attributed to exempted goods as reversed by the appellant. The appeal was disposed of by way of remand for passing a fresh de novo order.