Commissioner of Central Excise vs Sudarshan Cables Industries

We have heard Sri B.K. Singh Raghuvanshi for the appellant.

In this appeal, the following question of law is raised :-

Whether the penalty can be waived off under Rule 15 of the Cenvat Credit Rules, 2004 when credit has been taken and availed in contravention of Rule 11(2) of the Cenvat Credit Rules, 2004?.

The Joint Commissioner (Adjudication), Central Excise, Headquarters, Allahabad, confirmed Cenvat Credit/duty, amounting to Rs. 6,97,510/- for recovery, as demanded by the show cause notice u/s 11A of the Central Excise Act, 1944 read with Rule 14 of the Cenvat Credit Rules 2004. He also confirmed the additional Cenvat Credit/duty, amounting to Rs. 3,140/- on the miscalculation by respondent Company, as a differential amount, and recovery of interest and imposed penalty of Rs. 5,00,000/- under Rule 15 of the Cenvat Credit Rules, 2004.

The Commissioner (Appeals) Customs & Central Excise, Allahabad, relying upon the decisionin Pee Aar Steels (P) Ltd. Vs. Commissioner of Central Excise, , decided by Allahabad High Court, in which it was held that imposition of penalty has nothing to do with timing of the show cause notice, reduced the penalty to Rs. 1,00,000/-.

The Customs Excise & Service Tax Appellate Tribunal, Principal Bench, New Delhi has found that the issue in Tribunal Commissioner of Central Excise, Rajkot v. Ashok Iron and Steel Fabricators, 2002 (140) ELT 277 decided in favour of the respondent-Company, to the effect that when the Company did not reverse the credit on the inputs, process inputs and inputs in finished goods from their credit balance before switching over to SSI exemption as required under sub-rule (2) of the Rule 11 of Cenvat Credit Rules, 2004, the penalty is not attracted. In 2003 (86) ECC 344 , the Tribunal had decided in favour of the revenue, taking a view that there is a specific provision in Rule 57AD, which clearly provides that "Cenvat credit shall not be allowed on such quantity of inputs, which is used in the manufacture of exempted goods" and that Rule 57AH contains the provision for the recovery of Cenvat credit utilized wrongly.

In view of the conflicting opinion expressed by the Tribunals, the matter has been referred to a Larger Bench of the Tribunal, and thus penalty was not justified.

Section 11AC of the Central Excise Act provides for penalty, equal to the duty so determined, for short-levy or non levy of duty in certain cases

Rule 15(1) of Cenvat Credit Rules, 2004, provides for penalty, not exceeding the duty on the excisable goods in case a person takes CENVAT credit in respect of input or capital goods, wrongly or in contravention of any of the provisions of the rules.

Sub-rule (2) provides for levy of penalties u/s 11AC of the Excise Act, in case of fraud, wilful mis-statement, 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.

The penalty under sub-rule (2) is in addition to penalty under sub-rule (1) and thereafter there is a provision for penalty not exceeding Rs. 2,000/-under sub-rule (3). The sub-rule (4) also provides for penalty u/s 78 of the Finance Act, and the sub-rule (5) provides that any order under sub-rule (1) to (4) shall be issued by the Central Excise Officer, following the principles of natural justice.

Rule 15 of the Cenvat Credit Rules, 2004 is quoted hereunder :-

Rule 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, wilful mis-statement, 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, wilful mis-statement, 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.

The Tribunal has not committed any error in finding that no penalty could be imposed in the case, as there is conflicting opinion of the benches of the Tribunal, on account of which, it could not be said that Cenvat credit in respect of input or capital goods was wrongly taken or in contravention of any of the provisions of the Rules.

We may also observe that Rule 15 of the Cenvat Credit Rules, 2004, is by way of subordinate legislation, and it cannot impose penalty over and above the penalty provided u/s 11AC of the Central Excise Act. If there is an element of fraud, collusion or any wilful mis-statement or suppression of facts or contravention of any of the provisions of the Act or rules, with intent to evade payment of duty, a person who is liable to pay duty as determined under sub-section (2) of Section 11A of the Act, shall also be liable to pay penalty equal to the duty so determined, following the principles of natural justice.

The Central Excise Appeal is dismissed.