The Hyderabad Bench of Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) quashed the penalty as no demand was made in Show Cause Notice for alleged wrongful availment of CENVAT credit.
The appellant/assessee, M/s Nava Bharat Ventures Limited manufactures Ferro-Manganese and Silico-Manganese classifiable under Chapter 72 of Central Excise Tariff and pays Central Excise Duty. It has a captive power plant and part of the electricity generated is used in the manufacture of the final products and part is wheeled out to A.P. Transco, Subhash Kabini Power Corp. Ltd., Reliance Energy Trading Limited, A.P. Power Purchase Co-ordination Committee, etc. To the extent that electricity is captively used in the manufacture of final products, there is no dispute. The dispute is regarding the CENVAT Credit availed on the inputs and input services used in the production of electricity to the extent it is wheeled out.
The assessee reversed the proportionate amount of CENVAT Credit attributable to the inputs/input services to the electricity which is wheeled out. However, while calculating this proportionate amount of CENVAT credit, the credit on the input services mentioned in Rule 6(5) of CCR was not taken into account and no proportionate reversal was done on such input services. The show-cause notice demanded an amount equal to 8%/10% of the value of the electricity that was wheeled out under Rule 6(3A) of CCR. In the impugned order, the adjudicating authority accepted the proportionate reversal and therefore, did not confirm the demand in the show cause notice of 8% or 10% of the assessable value. However, the input services under Rule 6(5) while calculating the amount to be reversed was not excluded and hence the amount confirmed is higher than as per the assessee‘s calculations.
The adjudicating authority also imposed a penalty on the appellant. Assessee is aggrieved both by the calculation in the impugned order without excluding the credit of input services under Rule 6(5) and also by the imposition of penalty. Revenue is aggrieved by the fact that the adjudicating authority allowed proportionate reversal which is permissible subject to some conditions which, according to the Revenue, have not been fulfilled by the assessee and hence the Commissioner should have confirmed the entire amount of demand as per the show cause notice.
The coram headed by President Justice Dilip Gupta and Technical Member, P.V. Subba Rao held that Rule 15 provides for the imposition of a penalty if CENVAT credit has been wrongly availed which allegation must be made in the show cause notice with a proposal to recover such wrongly availed CENVAT credit under Rule 14 but such a demand has not been made. Instead, a demand of an amount equal to 8%/ 10% of the exempted goods under Rule 6(3) has been made in the show cause notice, which is only an option to the assessee and cannot be demanded under Rule 14. Since the show cause notice itself has been issued without authority of law, any penalty imposed in the impugned order in pursuance of it needs to be set aside too.
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