Appellate authority cannot travel beyond show cause notice.

PJ/Case Law/2013-14/2045

Case:- COMMISSIONER OF CENTRAL EXCISE, VAPI Vs GUARNIFLON INDIA PVT. LTD.

Citation:- 2013 (293) E.L.T. 703 (Tri. - Ahmd.)

Brief facts:- The appeal had been filed by the Revenue against the order-in-appeal No. SRP/22/Vapi/2012, dated 18-9-2012, issued by Commissioner (Appeals) Vapi. Respondent herein imported duty free PTFE powder under advance license and availed Cenvat credit of Rs. 6,77,682/- in the month of March 2008 when actually no CVD was paid. On being pointed out, the respondent reversed the said credit in the month of September 2009 and intimated to Revenue. The range Superintendent asked the assessee to pay interest which was later paid by the appellant. Subsequently, show cause notice dated 18-6-2010 was issued to the appellant and under order-in-original No. 15/J.C./Demand/Vapi/10-11 dated 6-9-2011 and equivalent penalty of Rs. 6,77,682/- was imposed upon the appellant under Section 11AC of the Central Excise Act, 1944 and it was ordered that no penalty was warranted under Rule 15(2) of the Cenvat Credit Rules. Commissioner (Appeals) under OIA dated 18-9-2012 held that under Section 11AC penalty was not imposable but held that penalty of Rs. 50,000/- was required to be imposed upon the appellant under Rule 15(1) of the Cenvat Credit Rules, 2004. Revenue filed this appeal against the OIA dated 18-9-2012, on the ground that penalty under Section 11AC of the Central Excise Act was required to be imposed in view of the Hon’ble Supreme Court judgment in the case of Dharamendra Textiles Industries & Ors v. U.O.I. [AIT - 2008-363-S.C. = 2008 (231)E.L.T.3 (S.C.)].

Appellant’s contentions:- Learned AR argued that penalty under Section 11AC was required to be imposed in this case as per the grounds of appeal.

Respondent’s contentions:- Respondent M/s.Guarniflon India Pvt. Limited, Silvassa, filed memorandum of cross-objection on the ground that their own internal auditors came to know that wrong Cenvat credit was taken and the same was intimated to the department in the ER-1 return filed for the month of September 2009. As the Cenvat credit wrongly taken was reversed suo motu, therefore penalty under Section 11AC or under Rule 15(1) of Cenvat Credit Rules was not attracted in their case. It was also argued that as the entire credit along with interest was reversed before issue of show cause notice, their case was coverable under Section 11A(2B).

Reasons of judgment:- After hearingthe rival submissions and perusal of the case records, it was noticed that taking of wrong Cenvat credit was detected by the internal auditors of the respondent and on their own they reversed the Cenvat credit wrongly taken and intimated to the department in their monthly ER-1 returns. They also discharged interest liability for the period during which the wrongly taken Cenvat credit was held by them. Once the wrongly taken credit along with interest was suo motu paid by the appellant and thereafter intimating the department, it could not be said that respondent had any intention to take wrong Cenvat credit by making misstatement or suppressing facts. Under the circumstances, the provisions of Section 11AC were not attracted in this case and no penalty under Section 11AC of the Central Excise Act, 1944 was imposable. The appeal filed by Revenue was, therefore, dismissed.
So far as thecross-objections filed by the respondent was concerned, it was observed that show cause notice proposed to impose penalty under Section 11AC of the Central Excise Act, 1944 read with Rule 15(2) of the Cenvat Credit Rules, 2004. Commissioner (Appeals) had imposed the penalty of Rs. 50,000/- upon the respondent under Rule 15(1) of the Cenvat Credit Rules, 2004, which was not even quoted in the show cause notice, Commissioner (Appeals), therefore, had gone beyond the scope of show cause notice. As already held above that respondent reversed the entire wrongly taken Cenvat credit along with interest and therefore, no intention on the part of the respondent to act in any mala fide manner could be attributed in those proceedings. Based on the above observations, it was held that penalty under Rule 15(1) of the Cenvat Credit Rules, not invoked in the show cause notice, could not be imposed upon the respondent as held by Commissioner (Appeals). Accordingly, cross-objection filed by the respondent was allowed.

Based on theabove observations, appeal filed by the department was rejected and the cross-objection filed by respondent was allowed.

Decision:- Appeal dismissed.

Comment:- The essence of this case is that the provisions of Section 11AC are not attracted if credit wrongly taken is reversed along with interest suo motto even before issuance of the show cause notice. Moreover, the act of the Commissioner Appeals in setting aside the penalty under section 11AC but imposing penalty under Rule 15(1) that was not invoked in the show cause notice was improper and illegal. The appellate authority travelled beyond the scope of the show cause notice.

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PJ/Case Law/2013-14/2045

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