No Penalty on wrongful availment of Cenvat Credit in absence of intention to evade duty

CA Bimal Jain

Issue involved in the instant case was, whether penalty under Rule 15(2) of the Credit Rules/ Rule 13 of the Credit Rules, 2002 and Section 11AC of the Excise Act is leviable, when the Department denied the irregular Cenvat credit taken by Flextronics Technologies (India) (P.) Ltd. (‘the Respondent’ or “’the Assessee’) after audit was conducted at their premises.

Whereas the Respondent argued that ineligible credit was not utilized and there was no intention to evade.

The Hon’ble Tribunal set aside the penalty imposed and held that there was no intention on the part of the Respondent to evade payment of duty. Being aggrieved, the Department preferred an appeal before the Hon’ble High Court of Karnataka.

The Hon’ble Karnataka High Court upheld the order of the Hon’ble Tribunal with the observation that as apparent from the record the Respondent had availed the wrong credit in their account but has not utilized the same and after being pointed out by the Department; the same was reversed by the Respondent.

Further, to attract penalty under Section 11AC of the Excise Act, the Revenue has to prove that the Assessee has availed Cenvat credit wrongly by reason of fraud or collusion or any wilful misstatement or suppression of facts, which is not forthcoming in the instant case. Hence, the Hon’ble Tribunal has rightly held that there was no intention on the part of the Respondent to evade payment of duty and the Respondent had not utilized the amount credited.