CA Bimal Jain
When Cenvat credit towards exempted goods has been reversed after audit objection but before issuance of SCN, penalty under Section 11AC of the Excise Act read with Rule 15 of the Credit Rules is not imposable
In the instant case, Man Structural Pvt. Ltd. (the Appellant) was engaged in manufacturing of dutiable as well as exempted final products. The Appellant has availed Cenvat credit on input/input services but was not maintaining separate accounts for inputs for manufacturing dutiable as well as exempted final products and also not paying amount equal to 10% of the value of the exempted goods at the time of clearance. During the course of audit, the Audit team pointed out the discrepancy and immediately on pointing out by the Audit team, the Appellant paid 10% of the value of exempted goods along with interest before issuance of SCN. Thereafter, the Department has issued SCN for imposing penalty under Section 11AC of the Excise Act read with Rule 15 of the Credit Rules.
The Hon’ble CESTAT, New Delhi relying upon the case of Commissioner of Central Excise, Ludhiana Vs. Sangrur Agro Ltd. [2010 (2) TMI 438 – PUNJAB & HARYANA HIGH COURT] dealing with reversal of amount under Section 6(3)(b) of the Credit Rules, held that since there was no suppression of facts i.e. element of Section 11AC of the Excise Act is not present, said provisions are not applicable and consequently, penalty under Rule 15 of the Credit Rules is also not imposable. It was further held that when the Appellant had paid the entire duty along with interest before issuance of SCN, no penalty can be imposed under Section 11AC of the Excise Act and Rule 15 of the Credit Rules.
Our Comments: There are plethora of judicial pronouncements in this regard wherein it has been repeatedly held that penalty cannot be imposed when amount of duty along with interest has been paid before issuance of SCN: