Imposition of interest and penalty after debonding by EOU.

PJ/CASE LAW/2015-16/3031

Case:-SHREE KADERI AMBAL MILLS LTD. VersusCOMMISSIONER OF C. EX., MADURAI

Citation:- 2016 (331) E.L.T. 444 (Tri. - Chennai)

Brief facts:- This appeal is against the Commissioner (Appeals) order dated 27-5-2005.
The appellant was registered with EOU Development Commissioner. They availed credit on the capital goods. Subsequently, the appellant opted for de-bonding of the same unit. Before de-bonding, the appellant has reversed the credit. The adjudicating authority in his order dropped the demand in his order dated 12-1-2005 and ordered for recovery of interest of Rs. 11,97,139/- and also imposed a penalty of Rs. 1,20,000/-. On appeal, the Commissioner (Appeals) has rejected the appeal and upheld the order. Hence the present appeal.

Appellant’s contention:- The learnedadvocate submits that they had two units one is registered as EOU and the other is registered as DTA. EOU unit had applied for debonding and paid appropriate duty on the capital goods. The same was transferred by raising invoice dated 30-3-2001 to the Unit-II. Unit-II has availed credit on 31-3-2001 whereas the AC has demanded interest on Unit-II and he submitted a date chart showing the date of availing the credit and date of debonding and date of approval by the Development Commissioner. The Development Commissioner approved the debonding w.e.f. 31-3-2001 whereas the adjudicating authority took the relevant date from 14-8-2001 and demanded the interest. He further submits that when there was no demand, question of interest does not arise. The relevant date for the demand should be taken as 31-3-2001 as approved by the Development Commissioner.

Respondent’s contention:- On the otherhand, ld. AR reiterates the findings and submits that final debonding was given by the Asst. Commissioner only on 14-8-2001 and till such time unit has remained as an EOU. Therefore, interest is payable. He relied on para 20 of the O-I-O.

Reasoning of judgment:-On a carefulconsideration of the submissions of both sides and also on perusal of records and the date chart submitted by the appellant, they find that adjudicating authority in his order dropped the proceedings in respect of recovery of demand of reversal of Cenvat credit. However, he demanded the interest. On perusal of the DC’s letter dated 20-7-2001 addressed to the appellant, where the appellant applied for de-bonding on 30-3-2001, final debonding order was issued and appellant was allowed to operate as DTA unit with effect from 1-4-2001. Subsequently, the Development Commissioner clarified that appellants have been permitted to operate as DTA unit on 31-3-2001 instead of 1-4-2001 as they have completed Central Excise formalities on 30-3-2001 itself. In view of the Development Commissioner’s letter allowing for debonding of EOU, the DTA unit of the appellants have reversed the credit on 30-3-2001 itself and the Development Commissioner in the above letter has also approved debonding w.e.f. 31-3-2001. Therefore, the question of demand of interest and imposition of penalty does not arise and also find that there was no removal of capital goods till the same unit becomes the DTA unit. There was no physical removal or clearance of capital goods or excisable goods. They find that the adjudicating authority instead of taking the date as 31-3-2001 has taken the date of debonding as 14-8-2001 which is not correct. Hence, they hold that appellants are not liable for any interest or penalty. Accordingly, the impugned order is set aside and appeal is allowed.

Decision:- Appeal allowed.

Comment:- The analogy of the case is that in view of Development Commissioner’s letter dated 20-7-2001, approving debonding and permitting assessee to operate as DTA from 31-3-2001 as Cenvat credit already reversed. There was no demand of any dues, so question of payment of interest and penalty does not arise for period 31-3-2001 to 14-8-2001. Also, there is no physical removal of capital goods as same Unit became DTA Unit. The date of debonding as 14.8.2001 taken by revenue is incorrect. So there is no liability arise for interest and penalty.

Prepared by:- Monika Tak

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PJ/CASE LAW/2015-16/3031

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