2010 (3) TMI 518 - AT - Central Excise

Tribunal reduces penalty for Cenvat Credit Rules violation, cites lack of mala fide intent

The Tribunal reduced the penalty imposed on the appellants for contravening Cenvat Credit Rules due to the absence of mala fide intention to evade duty. ... Penalty- the appellants availed Cenvat credit on capital goods which were not available in their factory premises at the time of visit and were never brought to the factory premises. The appellants were issued show cause notice alleging contravention of Rules 3 and 4 of the Cenvat Credit Rules, 2004. On pointing out the mistake at the time of visit the appellants reversed the credit along with interest. Held that - no findings by lower authority regarding intention to evade. Absence of ingredients like fraud, collusion etc. provision of section 11AC of Act not applicable. Penalty reduced to Rs. 5000 under Rule 15 of Cenvat credit Rule. Issues:Penalties under Rule 15 of Cenvat Credit Rules, 2004 read with Section 11AC of the Central Excise Act, 1944.Analysis:Issue 1: Availing Cenvat credit on capital goods not received in factory premises.The appellants availed Cenvat credit on capital goods kept in their godown, not in the factory premises, leading to allegations of contravention of Rules 3 and 4 of the Cenvat Credit Rules, 2004. The Department alleged contravention of Rules and proposed recovery under Rule 14 of Cenvat Credit Rules. The lower authorities confirmed the demand and penalties under Rule 15 of Cenvat Credit Rules read with Section 11AC of the Act.Issue 2: Intent behind availing Cenvat credit on capital goods.The appellant argued that they purchased the machineries but kept them in the godown due to space constraints in the factory. They claimed 50% credit on these goods in the godown, which was reversed upon Departmental officers' pointing out. The appellant later installed the machineries in the factory and availed credit, asserting no mala fide intention to avail credit unlawfully. The Department contended that availing credit without receiving goods in the factory amounts to suppression, invoking Section 11AC.Issue 3: Evaluation of mala fide intention and applicability of Section 11AC.The Tribunal found that while the appellants availed credit on goods not in the factory, there was no mala fide intention to unlawfully avail Cenvat credit. The lapse was attributed to failure to install the machinery in the factory premises due to space constraints. The Tribunal emphasized that the appellants did not purchase goods without proper documentation and that the goods were eventually installed in the factory. As there was no evidence of fraud, collusion, or willful misstatement to evade duty, Section 11AC was deemed inapplicable.Issue 4: Imposition of penalty for procedural lapse.Although the penalty under Section 11AC was deemed inapplicable, a procedural lapse was noted as the appellants failed to inform the department about availing Cenvat credit on goods in the godown. Consequently, a reduced penalty of Rs. 5,000/- under Rule 15 was imposed on each appellant for this procedural lapse.In conclusion, the Tribunal disposed of the appeals by reducing the penalty due to the absence of mala fide intention to evade duty, while acknowledging the procedural lapse by the appellants in not informing the department about availing Cenvat credit on goods in the godown.