Penal provisions cannot survive when the demand itself has been dropped.

PJ/Case Laws/2012-13/1537

Case:- C.C.E., BELGAUM Versus KRISHNA SAHAKARI SAKKARE KARKHANE NIYAMIT

Citation:- 2013 (288) E.L.T. 513 (Kar.)

Brief Facts:-The Revenue has preferred this appeal against the order passed by the Appellate Tribunal allowing the appeal filed by the assessee on the ground that when the demands are dropped on any account, in in such a situation, penal provisions cannot survive against the assessee.

The assessee was served with a show cause notice calling upon them le show cause why on a wrong or irregular capital goods CENVAT credit of Rs. 2,41,14,675.90 availed by them under Rule 3 of CENVAT Credit Rules, 2001/2002/2004 in contravention of Rule 4(4) should not be demanded/recovered from them along with interest under Rule 12/14 of the CENVAT Credit Rules, 2002/2004 read with proviso to Section 11A and 11AB of the Central Excise Act, 1944. Further, the assessee was asked to show cause why penalty should not be imposed on item under Rules 13/15 of CENVAT Credit Rules, 2002/2004 read with proviso to Section 11AC of the Central Excise Act,

Further, it was observed that when the demand itself was not sustainable, there was no necessity of giving separate findings with regard to the time-bar aspects of the demand. However, the Commissioner proceeded to hold that the conditions prescribed in sub-rule (4) of Rule 4 are not only procedural but also mandatory. Hence, in non-following the mandatory conditions in the course of taking of CENVAT credit cannot be viewed lightly. Therefore, the admitted mistake by assessee cannot escape penal action especially in the backdrop of involvement of huge amount of CENVAT credit. He proceeded to impose a penalty of Rs. 1,00,000/- on the assessee under the erstwhile Rule 13 of CENVAT Credit Rules, 2002 and Rule 15 of CENVAT Credit Rules, 2004. However, he dropped the demand of CENVAT credit made in the show cause notice dated 26-2-2006.

Appellant Contentions:-The Appellant contention is that the conditions prescribed in sub-rule (4) of Rule4 are not only procedural but mandatory. Hence, non-following the mandatory conditions in the course of taking of CENVAT credit cannot be viewed lightly. Therefore, the admitted mistake by assessee cannot escape penal action especially in the backdrop penalty of Rs. 1,00,000/- on the assessee under the erstwhile Rule 13 of CENVAT Credit Rules, 2002 and Rule 15 of CENVAT Rules, 2004. However, he dropped the demand of CENVAT credit made in show cause notice dated 26-2-2006.

Respondent Contentions:-The Respondent contention that assessee filed a detailed statement of objections pointing out how the assessee is not liable to pay the said amount. On consideration of the said objections, the Commissioner of Central Excise by his order dated 26-10- 2006 held that the assessee has made strong arguments in support of judicial pronouncement regarding their contentions that the CENVAT Credit cannot be denied on account of incorrect depreciation claimed initially and later rectified. Following the judgments of the Tribunal in the case of Terna [Shetkari] SSK LTD. v. CCE [2001 (138) E.L.T. 1225] has upheld the admissibility of credit. Further, it was observe that when the demand itself was not sustainable, there was no necessity of giving separate findings with regard to the time-bar aspects of the demand.

Reasoning of Judgment:- We have considered the submission from both the parties and perused the record, we find that aggrieved by the said order, the assessee preferred the appeal to the Tribunal. The Tribunal relying on the judgments of the Tribunal's throughout the country held that when once the demands are dropped, then in such a situation, the question of imposing the penalty does not arise. That is the correct legal position and therefore, we do not see any substantial question of law which arise for consideration in this appeal.

Decision:- The appeal is dismissed.

Comment:- The essence of this case is that it is correct legal position that when the demands itself are not sustainable, the question of imposing penalty does not arise.

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PJ/Case Laws/2012-13/1537

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