By TIOL News Service

NEW DELHI, MAR 14, 2018: DURING the disputed period, the appellant had changed classification of Camshaft from CH No.84831099 to 73259910 and paid duty @ 10.36%, instead of applicable rate of duty of 12.36%.

Upon pointing out by the Audit team, the appellant had deposited the duty along with interest before issuance of show cause notice. Nonetheless, the Adjudicating Authority imposed an equivalent penalty of Rs.27,70,115/- u/s 11AC of the CEA, 1944.

Another issue is regarding availment of CENVAT credit of Rs.1,82,242/- in respect of the services of painting of the factory building as well as machines. The credit was denied (and penalty was imposed) by the Original Authority on the ground that such service is in relation to construction of building and falls under exclusion clause of the definition of "input service" contained in Rule 2(l) of CCR, 2004.

Since the order was upheld by the Commissioner(A), the appellant is before the CESTAT.

It is submitted that the change in the classification of the goods and payment of duty @10.30%was mentioned in the ER-1 returns filed for the relevant period and, therefore, the charges of fraud, collusion, willful mis-statement cannot be leveled against the appellant for imposition of penalty under Section 11 AC of the Act. As regards availment of CENVAT credit, the services being covered under the inclusive part of the definition, same cannot be denied.

The Bench inter alia observed –

++ On perusal of the ER-1 Return for the relevant period, I find that the appellant had disclosed the payment of duty of 10.30% attributable to the product of Chapter 73259910. Thus, malafide cannot be attributed to the appellant, justifying the invocation of the provisions of Section 11 AC of the Act for imposition of equal amount of penalty. Since the said statutory provisions mandates imposition of penalty only in case of fraud, suppression, willful mis-statement, etc., with intent to evade payment of duty, which in this case is absent, I am of the considered view that imposition of penalty by the Authorities below under Section 11 AC of the Act cannot be sustained.

++ On perusal of the sample copies of the invoices issued by the service provider, I find that the services were provided in relation to the painting of the factory building and plant & machinery, which are appropriately classifiable under category of "renovation or repair of the factory" contained in the inclusive part of the definition of the "input service". Thus, I am of the considered view that such service falls under the purview of the "input service" for the purpose of availment of cenvat credit. Therefore, denial of cenvat credit and imposition of penalty on the appellant will not be sustainable.

The appeal was allowed.

(See 2018-TIOL-812-CESTAT-DEL)