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Appellants were aware that no duty was being paid on clearances of optional accessories as same were bought out items - since CENVAT was availed, credit ought to have been reversed - Appeals dismissed: CESTAT

By TIOL News Service

MUMBAI, DEC 28, 2012: THE appellants are engaged in the manufacture of Special Purpose Machines for Indian Railways and avail CENVAT Credit on inputs, capital goods and input services. On the basis of information that the appellants were evading payment of Central Excise duty, investigations were carried out and on investigation the following issues came to notice:-

(i) Wrong availment of CENVAT Credit on certain optional accessories which were not inputs but cleared along with the final products and the value of which was not part of the transaction value.

(ii) The failure to determine the correct value of the goods cleared to their sister unit as per provisions of Rule 8 and Rule 9 of the Central Excise Valuation Rules leading to short payment of duty.

(iii) Undervaluation of their final products by not including the forwarding charges recovered by them from their customers by issuing commercial invoices during the relevant period leading to the short payment of duty

(iv) Non-payment of duty on clearance of inputs as such cleared to their group companies without any invoices and without reversing CENVAT Credit availed on such input.

SCNs were issued and duly confirmed by the adjudicating authority along with imposition of penalty. The appellants had paid the duties demanded along with interest before issuance of the SCNs.

In appeal proceedings, the Commissioner(A) waived the penalties in respect of issues mentioned at serial nos. (ii) & (iii) above but confirmed the same in respect of the issues appearing at serial nos. (i) & (iv) above.

The appellant is before the CESTAT challenging the imposition of penalties in respect of the alleged violations mentioned.

It is submitted that non-reversal of CENVAT Credit in respect of optional accessories was purely a clerical error on the part of their staff and credit was reversed immediately after the Audit Party pointed out and there was no intention to evade payment of duty on account of fraud and suppression. In respect of non-payment of duty on clearance of the input as such to the appellant's another unit, it is submitted that the same is a revenue neutral situation. Reference is made to Section 11A(2B) of the CEA, 1944 and the decisions in Mafatlal Industries Ltd. = (2009-TIOL-14-CESTAT-AHM) & Adecco Flexione Workforce Solutions Ltd. = (2011-TIOL-635-HC-KAR-ST) in support of their contention.

The Revenue representative submitted that the appellant were not new to the procedures laid down in the Act/Rules and had intentionally availed CENVAT credit and, therefore, the Commissioner(A) had rightly confirmed the penalties.

The Bench observed -

"6. As regards the wrong availment of CENVAT Credit on the certain optional accessories, which were not the inputs, the appellants' contention is that non-reversal of CENVAT Credit was purely a clerical mistake on part of the operating persons. We find that the appellants were aware that no duty was being paid on the clearances of the optional accessories as the same were optional and bought out items. In terms of provisions of Rule 3(5) of the CENVAT Credit Rules, they were required to reverse/pay the amount equal to the CENVAT Credit availed on such accessories while clearing the same along with the final product, which they have not done and such a mistake cannot be accepted as a clerical error and the appellants' submissions in this regard are rejected. Since they have availed such credit despite knowing that the value of such accessories is not included in the assessable value of the final products and nor these accessories/inputs are capital goods for such product, the intention to wrongly avail CENVAT Credit is quite obvious and consequently they are liable for penal action under Rule 15 of the CENVAT Credit Rules read with Section 11AC of the Act. Accordingly, we confirm the Commissioner (Appeals) finding regarding the confirmation of penalty on this issue.

7. As regards the issue of clearance of inputs as such to their sister unit, we find that the appellants have cleared the input as such without raising any invoices for such clearance and they have neither paid the duty nor reversed the CENVAT Credit. If the said issue was not noticed by the Revenue, the appellants would have continued to clear the inputs to their sister unit without payment of duty. Therefore, the appellants have clearly violated the provisions of the CENVAT Credit Rules and accordingly, liable to penalty under Rule 15 of the CENVAT Credit Rules.

8. Since in both the issues there was clearly the intention to evade the payment of duty, the penalties on the appellants have rightly been imposed by the Commissioner (Appeals)."

After holding so the Bench distinguished the decisions relied upon by the appellant by observing that the appellant had intentionally contravened the provisions of CENVAT Credit Rules to evade payment of duty.

In fine, the order of the Commissioner(A) confirming the penalties was upheld and the appeals were dismissed.

(See 2012-TIOL-1953-CESTAT-MUM)


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