Recovery of cenvat credit worth Rs.5.63 crore upheld for clearing inputs without manufacturing but proportionate credit allowed for trading activity

CESTAT Mumbai upheld recovery of cenvat credit of Rs.5,63,66,047/- along with interest and equal penalty where inputs were cleared as such without manufacturing, distinguishing the case from precedent where duty payment was accepted by Revenue. However, the Tribunal set aside demand of Rs.1,18,45,107/- as appellant was eligible to debit proportionate cenvat credit for trading activity, which was already appropriated by original authority. Penalty on Managing Director was also set aside for lack of personal culpability. Appeal allowed in part.

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Issues involved:
The issues involved in the judgment are the availing of inadmissible cenvat credit by a manufacturing unit and its Managing Director, the utilization of cenvat credit for clearance of inputs not received in the factory, the reversal of cenvat credit, and the imposition of penalties.

Availing of Inadmissible Cenvat Credit:
The manufacturing unit imported vinyl acetate monomer and stored it in a Customs Bonded Warehouse, clearing it directly to customers from the warehouse without bringing it into the factory. The unit maintained records indicating receipt and clearance from the factory, availed cenvat credit without bringing the goods into the factory, and passed on the credit to customers. The Revenue issued a show cause notice alleging inadmissible cenvat credit availed by the unit. The original authority confirmed the demand, stating that despite reversing some credit, the unit had passed on the credit to customers. The Tribunal upheld the disallowance of cenvat credit of Rs.5,63,66,047, ordering its recovery with interest and penalty.

Utilization of Cenvat Credit for Clearance of Inputs Not Received:
The unit availed cenvat credit for inputs not received in the factory and utilized it for clearance of inputs as if received in the factory. The unit contended that it had reversed the credit, but the Tribunal found that the credit was utilized for direct sales from the warehouse. The Tribunal held that the availed cenvat credit was inadmissible and ordered its recovery along with interest and penalty.

Reversal of Cenvat Credit and Imposition of Penalty:
The unit argued that it had reversed proportionate credit attributable to trading activity, citing various tribunal decisions. The Tribunal noted that the unit had not followed the required procedure for reversing the credit and upheld the demand of Rs.1,18,45,107. However, the Tribunal set aside the demand, interest, and penalty related to this issue. The Managing Director, who reversed the credit immediately, was not found to have caused any loss to the exchequer, and the penalty imposed on him was set aside.

Conclusion:
The Tribunal allowed one appeal and partially allowed another, disallowing the inadmissible cenvat credit availed by the unit but setting aside the demand, interest, and penalty related to the reversal of proportionate credit. The penalty imposed on the Managing Director was also set aside.

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