Imposition of Penalty for utilising ineligible credit before 27.02.2010

PJ/Case Laws/2011-12/1357

Case: M/s Devangere Sugar Company versus CCE, Bangalore-II Commissionerate

Citation: 2011-TIOL-1197-CESTAT-BANG

Issue:- Appellant-manufacturer utilized ineligible credit – whether penalty can be imposed under Section 11AC of CEA, 1944 read with Rule 15 (2) or under Rule 15 (3) as it stood before amendment from 27.02.2010?

Brief Facts:- Appellants are manufacturer of sugar and molasses falling under sub-heading 17011190 and 17031000 respectively of Central Excise Tariff Act, 1985. They are registered under Central Excise and are availing the facility of Cenvat Credit under provisions of CCR, 2004.

On verification of appellant’s records, Department officers observed that the appellant-unit had a co-generation plant for production of electricity in their factory premises. The electricity so produced was found to be used in the factory of production. The excess power generated was supplied to the State Electricity Board for a price. As the electricity produced in the factory did not attract payment of Central Excise duty and as they had not maintained any separate accounts for receipt, consumption and inventory of input services meant for use in the manufacture of dutiable final products and non-dutiable goods, it appeared that the appellant during the year 2006-07 had availed ineligible credit of Service Tax paid on Courier, Clearing and forwarding, Telephone and GTA services amounting to Rs. 518217/- and had contravened the provisions of Rule 3, 4 and 6 (2) read with Rule 6(5) of CER, 2004.

A show cause notice was issued to the appellants proposing to disallow and demand the cenvat credit amounting to Rs. 518217/- alongwith interest. Imposition of penalty u/s 15 (3) & 15(4) of CER, 2004 was also proposed.

The Adjudicating Authority confirmed the demand and appropriated the amounts paid by the assessee along with interest. In addition, he imposed penalty under Rule 15 of the CCR, 2004 readwith Section 11AC of CEA, 1944.

Appellant preferred appeal wherein the Commissioner (A) upheld the Original Order but modified the same by reducing the penalty to 25% of the amount as per the provisions of Section 11AC.

Hence, appellant preferred appeal before the Tribunal.

Appellant’s Contention:- Assessee submitted that they are not challenging the amount reversed by them alongwith interest. But they are challenging the amount of penalty imposed by the Adjudicating Authority under Section 11AC an upheld by the Commissioner (A).

Appellant submitted that during the relevant period, provisions of Rule 6 of CENVAT Credit Rules, 2004 were not applicable in this case as the credit sought to be denied by the Lower Authorities is in respect of credit of service tax paid on input services.

Appellant referred to Rule 15 of the CENVAT Credit Rules, 2004 and also submitted that the said Rule has been amended from 27.02.2010 wherein provisions of Rule 15(2) and (3) included the input services on which credit has been wrongly availed.

Appellant submit that before the amendment, Rule 15 (3) will only be applicable and at the most they are liable for penalty of an amount Rs. 2000/-.

Respondent’s Contention:- Revenue contended that availment of credit of service tax paid on the input services and that these services were utilized for the goods, which were cleared without payment of duty was suppressed. That once suppression is held against the assessee, provisions of Rule 15 (2) also will apply or Section 11AC would apply.

Reasoning of Judgment:- The Tribunal perused the order of the Commissioner (Appeal) and noted that the Commissioner (A) has not correctly appreciated the appropriate provisions of Rule 15 of the CENVAT Credit Rules, 2004 as it was before amendment.

The Tribunal perused the provisions of Rule 15 and noted that provisions of sub rule (2) can be brought into the picture only where Cenvat credit, of duty on inputs or capital goods is availed on account of fraud, willful misstatement. Provisions of sub-rule (3) can be brought into play for denial of Cenvat Credit of input services and penalty can be imposed as indicated therein prior to amendment. It is seen that provisions of Section 11AC of CEA or Rule 15(2) could not be invoked, as the issue was of credit on input services. At the most, for the violations of availing ineligible credit, the appellant can be penalized under the provisions of Rule 15 (3) for an amount of Rs. 2000/- only. The provisions of Rule 15(4) cannot be invoked in this case as it is undisputed that appellant is a manufacturer and not provider of output service. In view of the above, the Tribunal modified the order of the Comm (A) to the extent that penalty imposed by the Adjudicating Authority u/s 11AC and as upheld by the comm. (A) is set aside, while holding that the appellant is liable to be penalized and penalty imposed by the adjudicating authority should be in accordance with Rules 15 (3) of the CCR, 2004.

Decision:- Appeals disposed off accordingly.

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PJ/Case Laws/2011-12/1357

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