Whether penalty sustainable if wrongly availed credit paid along with interest before SCN?

PJ/CASE LAW/2015-16/2608

Case:-COMMR. OF C. EX., CUS. & S.T., BELGAUM VERSUS ELVEETY INDUSTRIES PVT. LTD.

Citation:- 2014 (306) E.L.T. 174 (Kar.)

Brief Facts:-The material facts leading up to this appeal are as follows :
The respondent-assessee are registered with the Central Excise and are engaged in the manufacture of Biscuits falling under CETH 19059020 of the Central Excise Tariff Act, 1985 and are availing the benefit of Cenvat credit. Since it was found that the assessee had contravened the provisions of sub-rule 2(a) of Rule 4 of Cenvat Credit Rules, 2004 and had availed 100% of Cenvat credit in respect of capital goods received into their factory in the same financial year. Availing of benefit of credit of Rs. 7,082/- of Cenvat (BED) and Rs. 143/- of Education Cess as excess credit was found to be excess credit. When the same was pointed out to the assessee, the said mistake was rectified by readjusting the credit. However, proceedings were initiated by the Original Authority by issuing notice and the Original Authority passed the order on 24-7-2006 holding that the assessee had wrongly availed the Cenvat credit facility in a sum of Rs. 7,082/- towards duty and Rs. 143/- towards educational cess and also interest of Rs. 329/- and also imposed penalty of Rs. 10,000/- on the respondent for violation of the rules.
Being aggrieved by the said order passed by the Original Authority, the assessee preferred Appeal No. 313/2006 on the file of Commissioner of Central Excise (Appeals), Mangalore and the Appellate Authority by order dated 3-11-2006 held that the appellant-assessee had availed capital goods credit by posting 100% of such credit available in the first financial year itself instead of 50% as required in terms of sub-rule (2A) of Rule 2(4), and the appellant however, reversed the excess credit taken along with interest before issue of Show Cause Notice and when the duty and interest have been paid even before the issue of show cause of notice there was no need to impose a penalty and accordingly set aside the order passed by the Original Authority and allowed the appeal. Being aggrieved by the said order the Revenue preferred an appeal in Appeal No. Excise/55/2007 before the CESTAT and the Tribunal by order dated 19-3-2008 dismissed the appeal confirming the order passed by the Appellate Authority. Being aggrieved by the order passed by the Tribunal, the instant appeal is preferred by the Revenue.

Appellant’s Contentions:-Learned counsel appearing for the appellant submitted that the fact that there was wrongful availment of the Cenvat credit, is not disputed. However, mere readjustment would not by itself absolve the assessee of any violation and therefore the order passed by the Original Authority may be restored by setting aside the order passed by the Appellate Authority and the Tribunal.

Respondent’s Contentions:- No one appearing on behalf of respondents.

Reasoning of Judgment:- The High Court has given careful consideration to the contention of the learned counsel appearing for the appellant. The material on record would clearly show that the assessee had mistakenly availed 100% credit instead of 50% and when the same was brought to the notice of the assessee, the same was readjusted and interest was also paid on the wrongful credit. However, thereafter the proceedings have been initiated and original order has been passed imposing penalty and demand duty which was of Rs. 7,800/- and imposing penalty of Rs. 10,000/-. There is concurrent finding by the Appellate Authority and the Appellate Tribunal that the said finding of the Original Authority cannot be sustained and the same is set aside on the ground that as on the date of initiation of proceedings, the violation which was rectified by the assessee by readjusting the credit and also paying interest and therefore no further proceedings can be initiated and the said finding is justified having regard to the facts of the case.
In view of the above, the High Court held that, on the facts of the case, the appeal do not give rise to any substantial question of law. Accordingly the appeal is dismissed as devoid of merits.

Decision:- Appeal rejected.

Comment:- The analogy in the case is that if the assessee has taken 100% credit in the same financial year mistakenly which leads to the contravention of Sec 4(2A) of Cenvat Credit Rules,2004 and when the mistake was pointed out to the assessee it was rectified i.e. excess credit availed was readjusted and interest was also paid on such excess credit .Therefore, no further proceedings can be initiated on the assessee. Consequently, the appeal filed by the revenue for imposition of penalty was rejected as devoid of merits.

Prepared By-Neelam Jain

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PJ/CASE LAW/2015-16/2608

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