Reversal made with interest whether penalty @ 15% is to be paid.

[samiuddin ansari]

Sir,

My friend is having one manufacturing unit. Audit team of the Central Excise department conducted audit and raised some observations related to cenvat credit availment on Inputs and utilisation thereof. On being agreed, he has made reversal of Cenvat credit availed and utilised of Inputs with interest. However, the Audit team emphasised to made reversal with interest and penalty. I would like to know as to whether he has to made reversal alongwith with interest and penalty, however, he has not suppressed the fact, but due to oversight by the accountant of the unit. The same was availed and utilised which was infact not admissible to them. I seek your valuable advise and guidance in to the matter as to whether penalty is required to be paid in such case or otherwise.

Thanks with regard,

(Samiuddin Ansari)

[Himansu Sekhar]

Penalty is required to be paid

[KASTURI SETHI]

Had you reversed wrongly availed credit along with interest on your own i.e. before being pointed out by the audit, you would have saved penalty. Thus you could prove your bona fide mistake. Now the die is cast. Audit would take the credit. Penalty is imposable as it is now record based mistake. Audit cannot brush aside penalty as they are answerable to the department.

[samiuddin ansari]

I am not satisfied with response. Please quote under which provisions of the Finance Act, 1994/Service Tax Rules, 1994 /Central Excise Rules/Cenvat Credit Rules, the penalty is required to pay as there is no suppression, but it's bonafide mistake of technical nature. Is there any circular/instructions in this regard? if it is so please provide details.

Thanks with regard,

(Samiuddin Ansari)

[KASTURI SETHI]

Rule 15 of Credit Ruled read with Section 11 AC of Central Excise Act or Section 78 of the Finance Act. I would again emphasise that had you reversed on your own you would have proved your bona fide. When you reverse on being pointed out by the department, it is minus point for you. Law is very much clear. Can you prove your bona fide, if so, you can save your self from penalty

[KASTURI SETHI]

Dear Querist,

SECTION [11A. Recovery of duties not levied or not paid or short-levied or short-paid or erroneously refunded. - (1) Where any duty of excise has not been levied or paid or has been short-levied or short-paid or erroneously refunded, for any reason, other than the reason of fraud or collusion or any wilful mis-statement or suppression of facts or contravention of any of the provisions of this Act or of the rules made thereunder with intent to evade payment of duty,-

(a) the Central Excise Officer shall, within [two years] from the relevant date, serve notice on the person chargeable with the duty which has not been so levied or paid or which has been so short-levied or short-paid or to whom the refund has erroneously been made, requiring him to show cause why he should not pay the amount specified in the notice;

(b) the person chargeable with duty may, before service of notice under clause (a), pay on the basis of,-

(i) his own ascertainment of such duty; or

(ii) the duty ascertained by the Central Excise Officer,

the amount of duty along with interest payable thereon under section 11AA.

(2) The person who has paid the duty under clause (b) of sub-section (1), shall inform the Central Excise Officer of such payment in writing, who, on receipt of such information, shall not serve any notice under clause (a) of that sub-section in respect of the duty so paid or any penalty leviable under the provisions of this Act or the rules made thereunder.

Do you fulfill this condition ? If so, penalty is not imposable; if not, SCN will be issued for imposition of penalty and demand along with interest already recovered.

[Vijay kumar]

Mr.Samiuddin,

Please make an application to the Department in the following format given in Annexure-X of CESTAM, 2015 (Audit manual). If it is considered positively, there would be waiver of SCN and the audit objection would be closed accordingly:

ANNEXURE – CE- X

DRAFT OF THE LETTER TO BE WRITTEN BY THE ASSESSEE UNDER SECTION 11A (2) OF THE CENTRAL EXCISE ACT, 1944,

To,

The Commissioner

Customs, Central Excise and Service Tax,

Audit Commissionerate

______________________________

Sir,

Subject: Letter given for waiver of show cause notice in terms of Section 11A(2) of the Central Excise Act, 1944– reg.

****

I / We M/s _________________________, address ___________________________falling under the jurisdiction of Range _______________ and Division___________ do hereby state and request as under:-

a) As per the provisions of Section 11A(1)(b) of the Central Excise Act, 1944, where any Central Excise duty has not been levied or paid or has been short levied or short paid or erroneously refunded, the person, chargeable with the Central Excise duty, may pay the amount of such duty before service of notice on him under sub section (1) of Section 11 A and inform the central excise officer in writing in terms of sub section (2) of section 11A, who, on receipt of such information shall not serve any notice in respect of the amount so paid;

b) During the course of verification of our records / returns, by the Audit team from the office of Audit Commissionerate ___________, it is observed that there is a short payment / non levy / non - payment of duty / wrong availment of CENVAT credit on account of reasons mentioned as per the Annexure enclosed hereto. We have agreed to the points raised during verification / scrutiny and have paid the said amounts of duty and / or reversed the CENVAT credit of Rs. ________ vide GAR-7 Challan No. ________/ CENVAT Register Entry No. _______ dated ________ . We have also discharged the applicable interest liability.

4. In terms of the provisions of Section 11A(2) of the Central Excise Act, 1944, we request that the demand show cause notice may not be issued to us in this case and no penalty may be imposed on us as the above short levy/ short payment / non levy / non payment / wrong availment of Cenvat credit are not intentional on our part.

5. We request that the above issues may be treated as closed with this letter since we have complied with the provisions of the Central Excise law.

It is hereby confirmed that this amount is paid voluntarily and no appeal will be filed against such payment or we will not claim any refund in future.

Yours faithfully

Date: _________

Place: ________ Signature CEO / Director / Authorised Signatory

(Name & Designation)

M/s _____________________________

AI Summary

Voluntary reversal with interest can prevent penalty if notified to authorities before issuance of a recovery notice. Reversal of wrongly availed Cenvat credit must be accompanied by payment of interest, and voluntary reversal and written intimation to the authority made before any departmental notice will generally preclude imposition of penalty; if reversal follows audit detection and is not made prior to notice, penalty is likely unless bona fides are established.