Proper application of sub-clause of penalty under Rule 15 of the CCR, 2004.

PJ/Case Laws/2012-13/1551

Case:- M/s SCHOTT GLASS INDIA PVT LTD Vs C.C.E., VADODARA-II

Citation:- 2013-TIOL-518-CESTAT-AHM

Brief Facts:- The facts of the case, in brief, are that the appellant are engaged in the manufacture of Neutral Glass Tubing (NOC). The appellant is also availing the benefit of CENVAT credit of duty paid on the inputs/capital goods and input services under the provisions of CENVAT Credit Rules, 2004. During the course of preventive checks, it was observed that the appellant has availed and utilized CENVAT Credit of service tax for the services received prior to 10.09.2004. Accordingly a summon was issued by Supdt. (Prev.), C.C.E., Vadodara-II to the appellant to provide the details of the credit of service tax availed for the services received prior to 10.09.2004. On scrutiny of the details provided by the appellant vide letter, it was observed that the appellant has availed and utilized the credit of service tax for services received by them prior to 10.09.2004, which is inadmissible in terms of sub-rule (1) of Rule 3 of CENVAT Credit Rules, 2004. The appellant vide letter has informed that they have reversed the CENVAT credit along with interest.

Accordingly, a show cause notice was issued to appellant for recovery of CENVAT credit wrongly availed by the appellant under Rule 14 of the CENVAT Credit Rule, 2004 read with proviso to Section 11A (1) of Central Excise Act, 1944, for recovering interest at the appropriate rate under Section 11 AB of Central Excise Act, 1944 and also proposing for imposition of penalty under Section 11AC of Central Excise Act, 1944 read with Rule 15 (2) of CENVAT Credit Rules, 2004. It was also proposed for appropriation of service tax amount and interest already paid by the appellant. The show cause notice was decided by the adjudicating authority vide the order-in-original, wherein the adjudicating authority confirmed the demand of the CENVAT credit under Rule 14 of the CENVAT Credit Rules, 2004 and interest under Rule 14 of the CENVAT Credit Rules, 2004 read with Section 11AB of Central Excise Act, 1944. Since the appellant had already reversed the credit and paid the interest, the same were appropriated. The adjudicating authority also imposed penalty equal to the CENVAT credit wrongly availed, under Rule 15 (2) of CENVAT Credit Rules, 2004 read with Section 11 AC of Central Excise Act, 1944. Aggrieved by such an order, the appellant preferred an appeal before first appellate authority. The first appellate authority did not agree with the contentions raised respect of penalty and upheld the order of the adjudicating authority. Thereafter appellant filed an appeal before Tribunal.

Appellant’s Contention:- The appellant submits that they are not disputing the reversal of CENVAT Credit and interest thereof which has been done so by them as pointed out by the Audit party. It is his submission that they are challenging only the penalty imposed by the lower authorities under Rule 15(2) of CENVAT Credit Rules, 2004. It is his submission that provisions of Rule 15(2) will not apply in this case but the provisions of Rule 15(3) of CENVAT Credit Rules, 2004 will apply which mandates for imposition of penalty of Rs.2, 000 /- only for wrong availment of CENVAT Credit on input service. He would bring to my notice the decision of the Tribunal in the case of Davangere Sugar Company - 2011 (267) ELT 384 (Tri- Bang) = 2011-TIOL-1197-CESTA T-BANG and also the division Bench decision of the Tribunal in the case of Balrampur Chini Mills Ltd - 2012 (283) ELT 96 (Tri-Del.).

Respondent’s Contention:- The respondent reiterates the findings of the lower authorities.

Reasoning of Judgment:- The Tribunal heard both the parties and on careful consideration of the submissions made by both sides and perusal of the records, Tribunal find that the issue involved in this case is regarding wrong availment of CENVAT Credit of the Service Tax paid by the appellant as a recipient of the services. It is an admitted fact that the appellant was in-eligible to avail such CENVAT Credit of the Service Tax paid and has reversed the entire amount of CENVAT Credit as well as interest thereof on being pointed out. It is also specifically mentioned by the appellant that they are not contesting the amount is reversed by them. This takes Tribunal to the only challenge which has been posed by the appellant against the order of the lower authorities in respect of penalty imposed. On perusal of the records, Tribunal find that the equal amount of penalty has been imposed by the lower authorities under the provisions of Rule 15(2) of CENVAT Credit Rules, 2004. Tribunal also find that the very same rule was being considered by the co-ordinate Bench of the Tribunal in the case of Davangere Sugar Company (supra), wherein the Bench held as under:-

"7. It can be seen from the relevant paragraphs of the impugned order, that the appropriate provisions of Rule 15 of the CENVAT Credit Rules, 2004 as it was before amendment were not correctly appreciated. The said Rule reads as under:-

Rule 15 of CENVAT Credit Rules, 2004 - pre-Amendment

15. Confiscation and Penalty

(1) If any person, takes CENVAT credit in respect of input or capital goods, wrongly or in contravention of any of the provisions of these rules in respect of any input or capital goods, then, all such goods shall be liable to confiscation and such person, shall be liable to a penalty not exceeding the duty on the excisable goods in respect of which any contravention has been committed, or two thousand rupees, whichever is greater.

(2) In a case, where the CENVAT credit in respect of input or capital goods has been taken or utilized wrongly on account of fraud, willful misstatement, collusion or suppression of facts, or contravention of any of the provisions of the Excise Act or the rules made thereunder with intention to evade payment of duty, then, the manufacturer shall also be liable to pay penalty in terms of the provisions of section 11AC of the Excise Act.

(3) If any person, takes CENVAT credit in respect of input services, wrongly or in contravention of any of the provisions of these rules in respect of any input service, then, such person, shall be liable to a penalty which may extend to an amount not exceeding two thousand rupees.

(4) In a case, where the CENVAT credit in respect of input services has been taken or utilized wrongly by reason of fraud, collusion, willful misstatement, suppression of facts, or contravention of any of the provisions of the Finance Act or of the rules made thereunder with intention to evade payment of service tax, then, the provider of output service shall also be liable to pay penalty in terms of the provisions of section 78 of the Finance Act.

(5) Any order under sub -rule (1), sub-rule (2), sub-rule (3) or sub-rule (4) shall be issued by the Central Excise Officer following the principles of natural justice".

(8) On a mere perusal of the above reproduced rules, it can be seen that provisions of sub-rule (2) can be brought into 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 Central Excise Act 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 Section 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 the appellant is a manufacturer and not provider of output services. In view of the above, I modify the impugned order of the learned Commissioner (Appeals) to the extent that penalty imposed by the adjudicating authority under Section 11AC and as upheld by the learned Commissioner (Appeals) 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 CENVAT Credit Rules, 2004 i.e. Rs. 2000/-. The appeals are disposed off accordingly."

It can be seen from the above reproduced ratio that, at the most any penalty that can be imposed on the appellant will be under the provisions of Rule 15(3) of CENVAT Credit Rules, 2004 (prior to amendment) as it was, during the relevant material period. The Tribunal also finds strong force in the contentions raised by the appellant that division Bench of the Tribunal in the case of Balrampur Chini Mills Ltd (supra), will also apply in this case.

In view of the foregoing, following the judicial pronouncements made on the issue in hand, Tribunal find that the equivalent amount of penalty imposed by the lower authorities under Rule 15(2) of CENVAT Credit Rules, 2004 is not sustainable. Accordingly, the penalty imposed under Rule 15(2) of CENVAT Credit Rules, 2004 is set aside and the appeal to that extent is allowed.

At the same time, since there is violation of CENVAT Credit Rules, 2004, as has been held by the decision of the Tribunal in the case of Balarampur Chini Mills Ltd (supra) and in the case of Davangere Sugar Company (supra), Tribunal hold that the appellant is liable to be penalised under the provisions of Rule 15(3) of CENVAT Credit Rules, 2004 which is to the extent of Rs.2000/-. The appellant is directed to pay this amount within a period of 30 days from the receipt of this order and produce the challan before the lower authorities.

The appeal is disposed of as indicated hereinabove.

Decision:- The appeal was allowed by accepting appellant’s contentions.

Comment:- It is concluded from this case that 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. It is also clear that as the issue was of wrong credit on input services, at the most, for the violations of availing ineligible credit, the appellant can be penalized under the provisions of Section 15(3) for an amount of Rs. 2000/- only.

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PJ/Case Laws/2012-13/1551

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