2026 (2) TMI 428 - AT - Central Excise

Imposition of penalty under Section 11AC for inadmissible CENVAT credit blocked where duty and interest paid before SCN issued.

Audit found alleged wrongful availment of CENVAT credit on input services attributable to an exempted unit; the respondent paid the disputed credit and ... Imposition of penalty u/s 11AC - payment of duty and interest before issuance of show cause notice bars issuance of SCN and penalty - availment on input services attributable to an exempted unit - Extended period of limitation - invocation when SCN barred by prior payment u/s 11A(2) - HELD THAT:- We find that in the present case, during the course of audit, it was pointed out by the audit team that the Respondent have wrongly availed the CENVAT Credit on various input services attributable to Haridwar unit which was already enjoying the benefit of exemption from payment of excise duty. As soon as the audit team pointed out the irregular availment of CENVAT Credit attributable to Haridwar unit, the Respondent deposited the entire amount of allegedly inadmissible CENVAT Credit along with interest vide e-payment challan dated 27.12.2014, which is not disputed here. Once the Respondent have paid the amount along with interest before the issuance of SCN then as per the provisions of Section 11A(2) of the Act, the department is not supposed to issue the SCN as held in the various judgments cited. Hence, issuance of SCN, invoking the extended period of limitation, is itself legally not sustainable, therefore, we hold that the SCN was not required to be issued in the present case. Consequently, the learned Commissioner has rightly dropped the penalty under Section 11AC of the Act. Thus, we do not find any infirmity in the impugned order, hence, we uphold the same and dismiss the appeal of the Revenue. Cross-objection is also disposed of accordingly. Issues: Whether penalty under Section 11AC of the Central Excise Act could be imposed where the assessee deposited the allegedly inadmissible CENVAT credit along with interest prior to issuance of the show cause notice and whether issuance of the SCN invoking extended limitation was sustainable in law in view of Section 11A(2) of the Act.Analysis: The Tribunal examined whether the facts established a bona fide case and the legal effect of payment of duty and interest prior to issuance of SCN under Section 11A(2) of the Act. The material shows that upon detection of alleged irregular CENVAT credit, the assessee paid the entire disputed amount with interest before any SCN was issued. The Tribunal considered the statutory protection afforded by Section 11A(2) where duty and interest are paid prior to issuance of notice and surveyed the effect of that provision on proceedings for demand and penalty. The Tribunal also assessed the consequence of invoking extended period of limitation where the statutory bar in Section 11A(2) applies.Conclusion: The SCN invoking the extended period was not sustainable because the assessee had paid the disputed duty along with interest prior to issuance of the SCN, thereby attracting the protection of Section 11A(2) of the Act; accordingly, imposition of penalty under Section 11AC was rightly dropped and the appeal by the Revenue is dismissed.