Commissioner Appeals cannot enhance penalty suo motto without issuance of show cause notice.

PJ/Case Law/2013-14/1711

Case:-M/s DIVINE LABORATORIES LTD Vs COMMISSIONER OF CENTRAL EXCISE, VADODARA-I

Citation:-2013-TIOL-1106-CESTAT-AHM

Brief facts:-The facts of the case are that the appellant had availed CENVAT Credit of duty paid on capital goods during the period 2001 to 2006. The appellant's records were audited by the Audit party and it was noticed that the appellant had availed CENVAT Credit of duty paid of Central Excise duty and also claimed depreciation on the said amount under Income Tax Act. Since the appellant herein, for the period 2001 to 2005, reversed the CENVAT Credit so availed wherein they claimed depreciation under the Income Tax Act and also reversed the interest payable on such amount. The appellant herein had filed revised income tax return for the period 2005-2006, wherein they have added back the depreciation claimed on the capital goods on which CENVAT Credit was availed. Show cause notice was issued for demand of CENVAT Credit so availed, interest thereof and for imposition of penalty. The appellant is contesting the show cause notice before the adjudicating authority. The adjudicating authority, in the adjudication proceedings, confirmed the demand raised in the show cause notice for the period 2001-2005 and accepted and appropriated amounts reversed by the appellant along with interest. For the period 2005-2006, the adjudicating authority accepted the contention of the assessee and held that the demand is not sustainable. The adjudicating authority in the Order-in-Original, imposed penalty of Rs.10,000/- under the provisions of Rule 13/Rule 15 of CENVAT Credit Rules, 2004. Aggrieved by such an order imposing penalty, the appellant preferred an appeal before first appellate authority. The first appellate authority, after grant of personal hearing to the appellant, enhanced the penalty from Rs.10,000/- to Rs.39,964/- on the ground that the provisions of Rule 15 (2) of CENVAT Credit Rules, 2004 will be applicable for the ineligible CENVAT Credit availed during the period 2001-2005. Aggrieved by such an order, the appellants are before the Tribunal.

Appellant’s Contentions:- The Appellant submitted that the fact that the adjudicating authority has, in fact, dropped the proceedings for the demand raised for the year 2005-2006, accepting the appellant's claim that they have filed revised income tax return before the authorities, wherein they have expunged the depreciation amount. It is his submission that the first appellate authority had erred in enhancing the penalty imposed by the adjudicating authority as the Department was not in appeal before the first appellate authority on the quantum of penalty imposed by the adjudicating authority. It is his submission the first appellate authority has enhanced the penalty without any authority of law. He would bring to tribunal notice the judgment of the Hon'ble High Court of Karnataka in the case of Suprajit Engineering - 2010 (253) ELT 369 (Kar.) = (2010-TIOL-272-HC-KAR-CX)would be covering the issue in their favour.

Respondent’s Contentions:-The Respondent, on the other hand, would submit that there is no dispute as to the in-eligible CENVAT Credit availed by the appellant during the year 2001-2005, as they have availed CENVAT Credit of Central Excise duty paid on the capital goods while also availing depreciation. It is his submission that imposition of equivalent amount of penalty automatically arises under the provisions Rule 15 (2) of CENVAT Credit Rules, 2004, as the appellant is not disputing the reversal of CENVAT Credit for the period 2001-2005. It is his submission that the decision of the Tribunal in the case of Kisan Sahkari Chini Mills Ltd. - 2008 (224) ELT 557 (Tri-Del.), would be applicable as the appellant was aware that they have availed CENVAT Credit wrongly and also availed simultaneous benefit of depreciation under Income Tax Act.

Reasoning of Judgment:-After considering the submissions and perusing the records from both sides, the Appellate Tribunal have decided that it is undisputed that the appellant had challenged the Order-in-Original which imposed the penalty of Rs.10,000/- under the provisions of Rule 13/Rule 15 of CENVAT Credit Rules, 2004, before the first appellate authority. It is also undisputed that the Department has not filed any appeal against such Order-in-Original before first appellate authority. On this matrix, it needs to be gone into whether the first appellate authority has erred while enhancing the penalty imposed by adjudicating authority in the absence of any appeal from the Revenue. It is settled law that the first appellate authority can enhance the penalty only on an appeal filed by the Revenue authority against that order or as per provisions in statute. In the case in hand, it is seen that the assessee has disputed and challenged the imposition of penalty of Rs. 10,000/- before the first appellate authority. The first appellate authority has not issued any show cause notice to the appellant for enhancement of the penalty, despite there being statutory provisions in Section 35A of Central Excise Act, 1944. To that extent, the impugned order of the first appellate authority is inconsistent with the provisions of Central Excise Act, 1944 and is unsustainable on that ground itself. Accordingly, the enhancement of penalty by the first appellate authority without issuing show cause notice to the appellant is held as unsustainable and is liable to be set aside and the adjudicating authority also has done so. In the view of tribunal, action of the appellant in availing CENVAT Credit of Central Excise duty paid on the capital goods during the period 2001-2005 and also availing simultaneous benefit of depreciation under Income Tax Act is in violation of provision of CENVAT Credit Rules, 2004. To that extent, The Tribunal found that the impugned order of adjudicating authority imposing the penalty on the appellant is correct and does not require any interference. The penalty imposed by the adjudicating authority is upheld and the appeal is disposed of by also holding that enhancement of penalty by first appellate authority is incorrect. And finally the appeal is disposed of.

Decision:-Appeal disposed off.

Comment:-The essence of this case is that when appeal is filed by assessee for penalty imposed by the adjudicating authority and no appeal has been filed by the revenue, then the Commissioner Appeals do not have the power to enhance the penalty suo motto, that too, without issuing show cause notice and without providing the opportunity of being heard to the appellant.

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PJ/Case Law/2013-14/1711

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