2008 (2) TMI 122 - AT - Central Excise

Tribunal upholds duty demand but cancels penalty under Cenvat Credit Rules

The Tribunal upheld the duty demand on the appellant for availing ineligible Cenvat credit but set aside the penalty imposition under Rule 13(1) of the ... Appellant had availed ineligible credit on inputs received by an 100% EOU – since EOU, supplier has settled the case with Settlement Commission as regards the payment of differential duty, the appellant, co-noticee cannot be visited with penalty – case against the co-noticees comes to an end once the order of the settlement is passed in respect of the person entitled to file an application before Commission - moreover appellant has deposited entire duty during proceedings, penalty is set aside Issues:1. Availment of ineligible Cenvat credit under Cenvat Credit Rules.2. Imposition of penalty under Rule 13 (1) of Cenvat Credit Rules, 2002.Issue 1: Availment of ineligible Cenvat credit under Cenvat Credit Rules:The appellant availed Cenvat credit under the provisions of Cenvat Credit Rules based on inputs received from a 100% EOU. Subsequent investigation revealed that the supplier was not eligible for the duty payment as per the notification claimed. The appellant was issued a show cause notice for availing ineligible credit, and the adjudicating authority confirmed the demand and imposed a penalty of Rs.5.00 lakhs. The Commissioner (Appeals) upheld this decision. The appellant argued that the supplier had settled the case with the Settlement Commission, indicating the supplier's ineligible benefit under the notification. The appellant had already reversed the ineligible amount and challenged only the penalty imposition. The appellant relied on a Tribunal case precedent to support their argument.Issue 2: Imposition of penalty under Rule 13 (1) of Cenvat Credit Rules, 2002:The appellant contested the penalty imposition, stating that the supplier's settlement with the Settlement Commission should absolve them from the penalty. The appellant argued that since the supplier had settled the issue regarding the duty payment, the penalty on them should be set aside. The Senior Departmental Representative (SDR) contended that the penalty was justified as the appellant had availed ineligible credit. The Tribunal analyzed the Settlement Commission's final order, which confirmed the supplier's incorrect benefit under the notification. The Tribunal upheld the demand of duty on the appellant but found the penalty imposition unjustified. Referring to a previous Tribunal case, the Tribunal concluded that once a case is settled by the Settlement Commission, the penalty on co-noticees should be set aside. Therefore, the penalty imposed on the appellant was set aside based on the Tribunal's majority decision.In conclusion, the Tribunal upheld the demand of duty on the appellant but set aside the penalty imposition based on the Settlement Commission's settlement with the supplier. The Tribunal's decision aligned with the majority order in a previous Tribunal case, providing relief to the appellant regarding the penalty.