Imposition of Penalty under Section 11Ac - when credit availed by mistake and reversed voluntarily

PJ/Case Laws/2011-12/1512

Case: HINDUSTAN PETROLEUM CORPORATION LTD versus COMMR.OF C.EX. MUMBAI- II

Citation: 2012 (25) S.T.R. 161 (Tri.- Mumbai)

Issue:- Inadmissible credit availed – reversed voluntarily on being pointed out – Held, credit availed procedural infringement and due to interpretation – ingredients of Section 11AC missing – No penalty imposable.

Brief Facts:- The Appellant, a PSU, is engaged in the manufacture of various excisable goods falling under Chapter 27 of CETA, 1985. The Appellant also avails CENVAT credit of duty paid on inputs capital goods. During the course of audit from the Appellant record it was found that they have wrongly availed CENVAT credit of 161806/- during the financial year 2004-05 inasmuch as, availed CENVAT, (i) credit on inputs short received, (ii) excess credit than the duty paid on inputs and (iii) CENVAT credit on the basis of extra copy of the invoice. They also availed CENVAT credit amounting to Rs. 154711/- during March 2007 to July 2007 on the input service in respect of services received by them before 10-9-2004 which was not allowed on or after 10-9-2004 as per the law prevailed at that time. On being pointed out the appellant reversed the inadmissible credit. Thereafter show-cause notices dated 30-4-2008 and 27-5-2008 were issued against the appellant. The lower adjudicating authority appropriated the duty and interest and also imposed equal amount of penalty under Section 11AC of Central Excise Act, 1944. The Appellant challenged the imposition of penalty. The Id. Commissioner (Appeals) upheld the imposition equal amount of penalty.

Appellant’s Contentions:- The contention of the Appellant that they did not have any intention to evade payment of duty. As regards the inadmissible credit amounting to Rs. 161806/- taken on account of input short received, excess credit than the duty paid input and CENVAT credit on the basis of extra copy of the invoice is not due to intention to evade payment of duty and is only a bona fide mistake, at best it can be termed as procedural infringement and not misdeclaration or suppression of facts with intention to evade payment of duty. So far as the CENVAT credit amounting to Rs. 1,54,711/- availed from March 2007 to July 2007 on input service received by them before 10-9-2004. They further submit that the department has failed to bring out that there was any suppression or misdeclaration and the other ingredients incorporated under proviso to Section 11A and under Section 1lAC. Therefore equal amount of penalty is not imposable in this case.

Respondent’s Contentions:- The Id. JDR reiterates the finding of both lower authorities. He also submitted that Hon'ble Supreme Court in the case of UOI v. Rajasthan Spinning & Weaving Mills - 2009 (238) E.L.T. 3 (S.C.) held that once Section 11AC is applicable in a case a concerned authority would have no discretion in quantifying the amount and penalty must be equal to the duty determined under sub-section (2) of Section 11A. In countering the above, Id. counsel submitted that Hon'ble High Court of Karnataka in the case of C.C.E. v. Geneva Fine Punch Enclosures Ltd. - 2011 (267) E.L.T. 481 while referring to Hon'ble Supreme Court decision in Rajasthan Spinning & Weaving Mills (supra) upheld the Tribunal's finding. The entire duty paid voluntarily on being pointed out and cost of evasion of duty is not mentioned in the show-cause notice. Therefore, penalty under Section 11AC is not imposable and thus upheld the Tribunal's order.

Reasoning of Judgment:- The Tribunal noted that Appellant paid the duty and interest voluntarily on being pointed out during the course of audit and that they have availed inadmissible credit. The above facts are not in dispute. There was no determination of duty thereafter. The lower adjudicating authority in the case has found that the Appellant could not have reversed the inadmissible CENVAT credit after following the correct position as per Central Excise Act, 1944 and not waited for someone to point out the mistake and They came to the conclusion that in this case where they had intention to evade the Central Excise duty. So far as the CENVAT credit amount of Rs. 161806/- input service received by them before 10-9-2004, undisputedly, the appellant has reversed the CENVAT credit along with interest as soon as they were pointed out. The Tribunal found force in the contention of the Appellant that they did not have any intention to evade payment of duty and inadmissible credit taken on the ground of input short received, excess credit than the duty paid input and CENVAT credit on the basis of the extra copy of the invoice is not due to the intention to evade payment of duty and is only a bona fide mistake and at the best it can be termed as procedural infringement and not misdeclaration or suppression of facts with intention to evade payment of duty. So far as CENVAT credit amount to Rs. 154711/- availed from March 2007 to July 2007 on input service received from them on or before 10-9-2004 in this case also appellant have reversed the CENVAT credit along with interest as soon as it was pointed out.

The Tribunal agreed with the contention of the Appellant that there was no intention to evade payment of duty. This could at the best be termed as interpretational error. Further the contention of the Appellant throughout has been that there was no intention to evade payment of duty in the case. Ld. Commissioner (Appeals) has not given any finding other than quoting the Hon'ble Supreme Court's decision. The department failed to bring out ingredients expressly stated under proviso to Section 11A and Section 11AC of Central Excise Act, 1944. There was also no determination of duty after the Appellant reversed the CENVAT credit involved in this case. The Hon'ble Supreme Court in the case of Rajasthan Spinning & Weaving Mills (supra) held that application of Section 11AC would depend on the existence of other-wise of the condition expressly stated in the section. Further Hon'ble High Court in the case of Geneva Fine Punch while deciding the Revenue's appeal held that "The Tribunal in the instant case on a careful consideration of the material on record has held firstly that there is no determination of duty. Secondly, the aforesaid requirement i.e. the cause of evasion of duty is not mentioned in- the show-cause notice. Further that entire duty and interest was paid voluntarily on being pointed out. It held that no case for imposing the penalty is made out. The Commissioner as in total error in passing the order & imposing the penalty. Under these circumstances, we do not find any infirmity in the order passed by the Tribunal. No substantial question of law involved in this appeal that arises for consideration. Hence the appeal is dismissed”. Therefore the Tribunal concluded that Commissioner (Appeal) order is not sustainable in law and therefore liable to be set aside.

Decision:- Appeal allowed.

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PJ/Case Laws/2011-12/1512

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