CX - Reversal of CENVAT before issue of SCN - SCN does not detail grounds for penalty - application of Sec 11AC would depend upon existence or otherwise of conditions expressly stated in section - No penalty: HC
By TIOL News Service
CHENNAI, JULY 03, 2013: THE assessee is a manufacture of readymade garments falling under Chapter sub heading 62.01 of the Central Excise Tariff Act, 1985. After communicating with the jurisdictional Superintendent and after considering the reply, the Revenue held that credit taken to a sum of Rs.15 ,07,414 /-, was in excess of the admissible credit. However, subsequently, the assessee reversed the wrongful credit taken and paid the duty thereon. Evidently, this was before the issuance of show cause notice. Thus, though the original notice issued on 16.4.2004 proposed levy of interest under Section 11 AB of the Central Excise Act, 1944 and penalty under Rule 13(1) of the CENVAT Credit Rules, 2002, on the above facts, the Assistant Commissioner dropped the proposal on the levy of interest on penalty.
On appeal by the Revenue, the Commissioner reversed the order of the Assistant Commissioner. He proposed the imposition of penalty under Rule 13(1) of the CENVAT Credit Rules, 2002 and interest under Rule 12 of CENVAT Credit Rules 2002. The assessee objected to this that the notice failed to point out how the penal provisions were attracted in the case, more so in the context of payment of the duty even before the issue of the notice in terms of Section 11A(2B) of Central Excise Act, 1944.
A cursory reading of the notice shows that except for mere reference to the proposal to levy penalty under Section 13(1) of CENVAT Credit Rules, 2002, there is no discussion as regards the various requirements which are necessary for the purpose of levy of penalty under Section 11AB of Central Excise Act 1944.
In the absence of any other material to show the intent to cause wrongful gain as required under Section 11A of the Central Excise Act, the levy of penalty was cancelled by the Tribunal. Aggrieved by this, the present appeal by the Revenue before the High Court.
The standing counsel appearing for the Revenue placed reliance on the decision reported in ( 2009-TIOL-63-SC-CX ) - UNION OF INDIA v. RAJASTHAN SPINNING & WEAVING MILLS and submitted that but for the detection by the Revenue, the assessee would not have reversed the entry. In the circumstances, going by Section 11AB of the Central Excise Act, on the facts the levy of penalty is liable to be imposed.
The High Court did not agree with the submission of the standing counsel for the Revenue. The decision of the Apex Court reported in ( 2009-TIOL-63-SC-CX ) - UNION OF INDIA v. RAJASTHAN SPINNING & WEAVING MILLS referred to the decision of the Apex Court reported in ( 2008-TIOL-192-SC-CX-LB ) - UNION OF INDIA v DHARAMENDRA TEXTILE PROCESSORS , wherein, the Apex Court pointed out that the application of Section 11AC would depend upon the existence or otherwise of the conditions expressly stated in the section, once the section is applicable, the concerned authority would have no discretion in quantifying the amount and penalty must be imposed equal to the duty determined under sub-section (2) of Section 11A. In so holding, the Apex Court held that in every case of non payment or short payment of duty, penal provisions cannot be automatically invoked; in other words, the conduct of the assessee in each of the case, before imposing penalty, has to be looked at on the bona fides of the assessee as regards his claim which otherwise would not be sustained in law.
As far as present case is concerned, it is no doubt true that the assessee originally made the claim for CENVAT credit. As rightly submitted by the counsel for the assessee, the same was availed on the basis what had been stated so by the department. However, subsequently, on receipt of intimation from the department in October 2003, the assesee reversed the credit immediately thereon and paid the duty. On a reading of the show cause notice, it can be held that it is bereft of any details which are required to be considered for the purpose of levy of penalty under Rule 13(1) of the CENVAT Credit Rules 2002. In the absence of any specific ground alleged, the High Court did not find any justifiable ground to disturb the order of the Tribunal.
Applying the law declared by the Apex Court in the decision reported in ( 2009-TIOL-63-SC-CX ) - UNION OF INDIA v. RAJASTHAN SPINNING & WEAVING MILLS , the High Court rejected the appeal filed by the Revenue, thereby confirming the order of the Tribunal. The Civil Miscellaneous Appeal is dismissed.
(See 2013-TIOL-518-HC-MAD-CX)
