Penalty u/s 11AC not liable in Absence of Fraud, Collusion, Willful Misstatement or Contravention of Provisions of CENVAT Credit Rules

The Kolkata bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) penalty under section 11AC of the Central Excise Act, 1944 is not liable in the absence of fraud, collusion, willful misstatement or contravention of provisions of Cenvat Credit Rules,2004.

There was a burglary in the factory of the appellant, Versatile Wires Limited and they had filed FIR at the nearby Bishnupur Police Station. It was submitted that the same was reflected in their balance sheet and CERA had made the audit observation based on the entry in the balance sheet and hence there was no suppression of facts by them as alleged in the Show Cause Notice.

The incidence of Burglary took place in 2010 and the Show Cause Notice was issued on 20.12.2013 and hence there was no suppression of facts and accordingly Show Cause Notice was barred by limitation of time.

The goods worth more than Rs.5.00 Lakhs had been stolen and they had received insurance claims of only Rs.3.20 Lakhs. It was also contended that the burglary was not due to their fault and hence the question of penalty does not arise.

It was the case of the Department that the assessee had taken CENVAT Credit on Copper wire rods during the year 2009-10, which was not used in or about the manufacture of the final products.

As per Rule 3(1) of the CENVAT Credit Rules, 2004, a manufacturer is eligible to take CENVAT Credit of duty paid on inputs used in or about the manufacture of the final products. The assessee admitted the fact that the portion of the inputs on which CENVAT Credit had been taken had been lost due to burglary in the factory during the year 2010-11. However, the assessee had paid the irregular CENVAT Credit to the tune of Rs.61,190/- on 05.02.2013 by Challan No.77093 dated 05.02.2013.

A single-member bench comprising Shri P K Choudhary, Member (Judicial)observed that there was a burglary in the factory premises of the Appellants during the year 2010-11. It was observed that some inputs of Copper wire rods on which CENVAT Credit was taken had not been used for the manufacture of final products. The assessee was asked to reverse the CENVAT Credit taken on the said inputs.

On being pointed out the assessee paid the irregularly availed CENVAT Credit to the tune of Rs.61,190/- on 05.02.2013. Since there was no fraud, collusion, suppression of facts, willful misstatement or contravention of the provisions of the Act or the Rules to render the assessee liable to penalty under Section 11AC of the Central Excise Act, 1944.

While allowing the appeal, the Court held that the penalty imposed under Section 11AC is not sustainable and set aside. 

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