2026 (1) TMI 565 - AT - Central Excise

Levy of penalty and recovery of accumulated CENVAT credit: Commissioners order set aside; claims remitted for fresh adjudication under rule 5.

Dispute concerns recovery of erroneously granted accumulated CENVAT credit and levy of penalty under CENVAT regime. The article applies the principle of ... Levy of penalty u/r 15 of CENVAT Credit Rules, 1994 - Recovery of refund accumulated CENVAT Credit, granted erroeously - overlapping jurisdiction - principle of comity of courts - HELD THAT:- The principle of ‘first strike’ in overlap of jurisdictions excludes further life support for the order of Commissioner of Central Excise in the outlined circumstances. There is nothing original in the findings therein. It militates against the principle of uninfluenced outcome in adjudicatory proceedings as well as inappropriateness of ‘poaching’ upon facts that were before any other authority at the same time. Most importantly, it is the lack of prejudice to the interests of the public exchequer in setting aside the order of Commissioner of Central Excise -– an undertaking bereft of application of mind – that weighs uppermost with us. Having done so, we proceed, uncluttered and unhandicapped, to consider the order of first appellate authority on the correctness of having upheld the ineligibility of the appellant for refund under rule 5 of CENVAT Credit Rules, 2004. The Tribunal had not given any indication that the claims had been properly sanctioned by the original authority in the earlier round. The Tribunal had not given any indication that the claims deserved to be rejected either. Both were outcomes available to the authority under rule 5 of CENVAT Credit Rules, 2004 to venture upon and in accordance with law and procedure governing such refunds. Having considered rejection on the ground supra, it was incumbent on that official to communicate the reasons for such intendment to the applicant. Insofar as the ground of rejection itself is concerned, it is noted that a mechanism for ascertainment of potential use of such accumulated credit, if not monetized, has not been designed. This would be tantamount to vesting the device of tool for determining eligibility in the hands of officials and on case-to-case basis. The lower authorities have rendered a finding that the evidence of lack of wherewithal to utilise was not furnished. That is the detail which should have found a place in the show cause notice for effective opportunity of furnishing, or disclaiming availability, and, thus, paving the way for reasoned conclusion of proceedings. There was nothing on record for the appellant herein to respond upon and to be heard about. The impugned order of first appellate authority set aside - the applications before the original authority restored for fresh processing in accordance with law and procedure as prescribed - appeal allowed. Issues: (i) Whether the order of Commissioner of Central Excise confirming recovery and imposing penalty should be set aside as an impermissible overlapping and redundant proceeding; (ii) Whether the impugned order of the first appellate authority rejecting refund claims under Rule 5 of the CENVAT Credit Rules, 2004 should be set aside and the refund applications restored to the original authority for fresh consideration in accordance with law and procedure.Issue (i): Whether the order of Commissioner of Central Excise confirming recovery and imposing penalty should be set aside as an impermissible overlapping and redundant proceeding.Analysis: The order under challenge mirrored findings of the first appellate authority and did not contain original findings. The penalty imposed under Rule 15 was without authority insofar as it attended to recovery under Rule 14. The existence of two separately enforceable recoveries arising from identical circumstances created risk of duplicative enforcement and undermined hierarchical appellate comity. Applying the principle that a subordinate adjudication should not re-duplicate an appellate determination where there is no independent application of mind, the impugned Commissioner order was examined for prejudice to the revenue and for presence of reasoned adjudication.Conclusion: In favour of the Assessee. The order of the Commissioner of Central Excise confirming recovery and imposing penalty is set aside.Issue (ii): Whether the impugned order of the first appellate authority rejecting refund claims under Rule 5 of the CENVAT Credit Rules, 2004 should be set aside and the refund applications restored to the original authority for fresh consideration in accordance with law and procedure.Analysis: The earlier Tribunal remand restored claims to the original authority for fresh adjudication under Rule 5. The first appellate order rejecting the refund failed to record reasons and did not provide the appellant with a proper opportunity to meet essential factual grounds—specifically, evidence as to non-utilisability of accumulated credit and the basis for rejection. The procedural requirements for issuance of a show cause or reasoned rejection under Rule 5 and the related notification were not satisfied. Consequently, the appellate order did not conform to the remand direction and required setting aside to enable a fresh, reasoned decision by the original authority.Conclusion: In favour of the Assessee. The impugned first appellate order is set aside and the refund applications are restored to the original authority for fresh processing in accordance with law and procedure.Final Conclusion: The redundant and non-reasoned adjudication by the Commissioner of Central Excise is extinguished and the appellate order rejecting the refund is set aside to permit fresh, procedurally compliant determination by the original authority; this disposition preserves appellate hierarchy and ensures the claims are re-adjudicated on recorded reasons and with opportunity to the assessee to meet factual deficits.Ratio Decidendi: Where an appellate determination or remand requires fresh adjudication under the prescribed rule, subordinate or subsequent adjudication that merely duplicates appellate findings without independent, reasoned application of mind and that creates duplicative enforceable recoveries must be set aside; refunds under Rule 5 require reasoned communication of grounds and opportunity to the claimant before rejection.