No penalty imposable if credit availed wrongly and not with malafide intention.

PJ/Case Law/2013-14/2094

Case:- CCE, AURANGABAD VsNRB BEARING LTD.

Citation:-2014-TIOL-31-CESTAT-MUM

Brief facts:- The Revenue is in appeal against the impugned order wherein the Commissioner (Appeals) set aside the penalty confirmed against the respondent under Section 11AC of the Central Excise Act, 1944.
Brief facts of the case are that the respondent procured capital goods in the year 2001-02. In the said year, they availed 50% of CENVAT Credit of duty paid capital goods. Remaining 50% credit was taken in the year 2002-03. The respondent again took 50% in 2003-04. Audit took place in the factory of the respondent and on pointing out by the audit party they reversed the CENVAT credit availed on the capital goods on 14.07.2003 on 31.10.2003 and interest was also paid on 03.11.2003. The Revenue issued a show-cause notice for imposition of penalty under Section 11AC of the Act read with Rule 13 of the CENVAT Credit Rules, 2004. Adjudication took place, penalty was confirmed but on appeal to the Commissioner (Appeals), the penalty was dropped. Against the said order, the Revenue filed appeal.

Appellant’s contention:- The learned A.R. appearing for the Revenue submitted that the learned Commissioner (Appeals) dropped the penalty against the respondent on account of that the duty and interest has been paid before issuance of show-cause notice which is not correct proposition as held by the Hon'ble Supreme Court in the case of Union of India vs. Rajasthan Spinning & Weaving Mills - 2009 (238) ELT 3 (S.C.) 2009-TIOL-63-SC-CX. Therefore, the impugned order is to be set aside and penalty under Section 11AC is to be confirmed against the respondent.

Respondent’s contention:-On the other hand the learned Consultant on behalf of the respondent has taken the credit wrongly but on pointing out they immediately reverse the same and paid interest for the intervening period. Therefore, the extended period of limitation is not applicable in this case but the show-cause notice was issued for invoking the period of limitation. He further submits that the show-cause notice has been issued after 16 months therefore, in the absence of mens rea the question of penalty is not sustainable.

Reasoning of judgment:- On perusal of the records, the bench found that in the show-cause notice in para (iii) it has been recorded that the noticee had intentionally taken wrong credit of duty on capital goods and utilized the same for payment of Central Excise duty. They did not reverse the said credit on their own accord but only after being pointing out by the departmental officers and hence they appear liable for penal action. On perusal of the said allegation in the show-cause notice, the credit has been taken intentionally and wrongly. Both are contrary terms. If the credit is taken intentionally then it cannot be taken wrongly but if it is mentioned wrongly then it cannot be intentionally. When the show-cause notice alleges two contrary terms against the respondent in that situation, benefit of doubt goes in favour of the respondent. As show-cause notice has not alleged the respondent clearly therefore the bench upheld the impugned order wherein penalty had been dropped against the respondent.

Decision:- Appeal dismissed.

Comment:- The gist of this case is that there is difference in credit availed intentionally and credit availed wrongly. Credit availed wrongly is always unintentional or ignorantly therefore penalty under section 11 AC is not imposable. As the Show Cause Notice issued by revenue was not clear enough that whether assessee had availed credit wrongly or intentionally, therefore, the benefit of doubt was extended to the assessee and order dropping penalty was upheld.

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PJ/Case Law/2013-14/2094

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