No penalty if credit reversed along with interest before issuance of SCN.

PJ/CASE LAW/2016-17/3148

Case:-KOTSONS PVT. LTD. VERSUS COMMISSIONER OF C. EX. & S.T., JAIPUR-I

Citation:- 2016 (333) E.L.T. 456 (Tri. - Del.)

Brief Facts:-Appellants are engaged in the manufacture of ‘Electric Transformers & Transformer Parts’ and are having Central Excise Registration. On inspection of records conducted on 16-10-2008 it was found that appellants had received old and used capital goods from M/s. Kotson’s (P) Ltd., Alwar (Unit-I). The appellant had availed full amount of Cenvat credit of the duty (Rs. 17,17,299/-) in the same financial year in which the said capital goods were received instead of availing 50% credit as provided in Rule 4(2)(a) of Cenvat Credit Rules, 2004. Therefore appellants wrongly availed credit of Rs. 17,17,299/-. It was also observed that the supplier unit viz. Kotson’s (P) Ltd. - Alwar, Unit-I had cleared the impugned old and used capital goods on the same value on which the capital goods were received by them, whereas they were required to clear these capital goods on depreciated value to be calculated in terms of Rule 3(5) of the Credit Rules, and thus appellants availed surplus credit. On being pointed out these objections, the appellants reversed the credit along with interest. According to department the appellants did not intimate the department the fact of availing full Cenvat credit on capital goods in the same financial year. That appellant suppressed material facts with intent to evade payment of duty. A show cause notice dated 18-3-2011 was issued which finalized in the order dated 10-1-2012 which disallowed the credit of Rs. 18,59,650/- and confirmed the liability of interest and appropriated the credit reversed and interest deposited. A penalty of equal amount was imposed, besides separate penalty of Rs. 1,50,000/- on Shri G.S. Rajput, Vice President of M/s. Kotsons (P) Ltd. The learned Counsel for the appellant referred to Rule 10 of the Cenvat Credit Rules and contended that sub-clause (2) of Rule 10 permits utilizing the credit when the credit was lying unutilized in the accounts of the assessee. The learned DR controverted these submissions and explained that Rule 10 of Cenvat Credit Rules has no relevancy or application to the facts of this case.

Reasoning of Judgment:- Heard both sides. Tribunal does find force in the arguments advanced by the Department. Rule 10 relates to transfer of Cenvat credit lying unutilized when the manufacturer shifts the factory to another site on account of change of ownership etc. In this case the old and used capital goods were cleared to the sister unit. The appellants then availed 100% credit on capital goods in the same financial year. The sister unit while clearing the goods availed credit on the entire duty paid on invoices without taking into account the depreciation. The learned counsel for appellants had made a frail attempt to establish that Rule 10 of CCR would apply in case of shifting of the capital goods to sister unit. Rule 10 does not fall in place with the facts of this case. The appellants have reversed the credit and also deposited the interest. The appellants have not been able to substantiate their act of availing credit as per provisions of law. Therefore the finding of the authorities below that appellant has wrongly availed credit does not call for any interference.
It is the case of department that the appellants had not intimated regarding the alleged credit availed. That it would not have come to light but for the scrutiny of records by officers and that therefore appellant is guilty of suppression of facts. Equal amount of penalty under Rule 15 read with 11AC is imposed upon the appellants besides separate penalty upon the Vice President under Rule 26 of Central Excise Rules. The appellant has reversed the credit along with interest before the issuance of show cause notice. The appellant reversed the credit and deposited the interest vide GAR-7 Challans dated 17-10-2008 and 15-2-2011. But show cause notice dated 18-3-2011 was issued to the appellant and proceedings were initiated. Sub-clause (2B) of Section 11A provides that when duty has been so paid no notice shall be served on the assessee. Therefore the penalty imposed is totally unjustified. The same are set aside.
In the light of the above discussions, the impugned order is modified to the extent of setting aside the penalty imposed on the appellant including the separate penalty imposed on Shri G.S. Rajput. The appeals are partly allowed in the above terms.

Decision:- Appeals partly allowed.

Comment:-The gist of this case is that although the appellant was liable to reverse the wrongly availed Cenvat credit on the capital goods but as the credit was reversed along with interest before issuance of show cause notice, no penalty was imposable on the appellant.

Prepared by: Mahesh Parmar

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PJ/CASE LAW/2016-17/3148

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