Cenvat credit demand set aside after voluntary duty payment on pet bottles for captive consumption under Section 11A(2B)

CESTAT Chandigarh set aside demand for recovery of Cenvat credit wrongly availed on pet bottles manufactured for captive consumption during August 2008 to May 2010. The appellant voluntarily informed the Department in June 2010 about duty liability and paid duty along with interest of Rs. 8,84,585 in cash. CESTAT held that since duty was paid voluntarily without dispute, no Show Cause Notice was required under Section 11A(2B) of Central Excise Act, 1944. The extended limitation period could not be invoked as there was no suppression of facts by the appellant. Rule 8(3A) of Central Excise Rules, 2002 was wrongly applied by Department. Penalty under Rule 26 was also set aside as requisite ingredients were absent. Both appeals were allowed.

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Issues:
Recovery of Cenvat Credit and penalty imposition under Cenvat Credit Rules, 2004; Demand of central excise duty and penalty imposition under the Central Excise Act, 1944; Imposition of penalty on the authorized signatory under Central Excise Rules, 2002.

Analysis:
The appeals challenged an order confirming demands for Cenvat Credit recovery, penalty imposition, central excise duty demand, and penalties under various rules. The appellant, a distillery, had not paid duty on pet bottles used for filling alcoholic liquor, believing no duty was required for captive use. Upon realizing the duty liability, the appellant voluntarily informed the Department, paid the duty from Cenvat Credit, and complied with subsequent requirements. The Department issued a show cause notice invoking extended limitation, which the Adjudicating Authority upheld.

The appellant argued that the impugned order lacked legal sustainability, as they voluntarily disclosed the duty liability and paid it, precluding the need for a show cause notice under Section 11A(2B). They contended that Rule 8(3A) was inapplicable, citing High Court judgments declaring it ultra vires. The appellant emphasized precedents supporting Cenvat Credit entitlement even if subsequent duty is payable on the final product.

Regarding limitation, the appellant claimed the demand was time-barred, having informed the Department voluntarily more than two years before the show cause notice. They challenged the penalty on the authorized signatory, asserting a lack of mens rea and legal grounds for penalty imposition under Rule 26.

The Revenue representative supported the impugned order, alleging the appellant's suppression of material facts to evade duty payment. They cited the decision in UOI vs. Rajasthan Spinning & Weaving Mills and upheld the denial of Cenvat Credit and central excise duty demand.

The Tribunal found the appellant had rectified the duty non-payment, paid voluntarily, and the Department did not dispute it. They concluded that the show cause notice was unnecessary under Section 11A(2B). The Tribunal also held Rule 8(3A) inapplicable, citing its invalidation by High Courts. They emphasized the appellant's entitlement to Cenvat Credit based on established legal principles. The Tribunal ruled the demand time-barred due to voluntary disclosure and absence of suppression, setting aside the penalties imposed under Rule 26.

In summary, the Tribunal deemed the impugned order legally unsustainable, allowing both appeals in favor of the appellant.

(Order pronounced in the open court on 05.12.2024)

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