CESTAT Upholds ₹2.55L CENVAT Credit Demand with Interest, Sets Aside Penalty u/s. 11A(2) as Duty Paid Pre-SCN [Read Order]

However, the Bench set aside the penalty imposed under the Central Excise Act, 1944, holding that once the credit and interest had been deposited before the show cause notice, statutory provisions barred continuation of penalty proceedings.

The Appellant, M/s Zumax Equipments Pvt. Ltd., engaged in manufacturing kitchen equipment and other articles of iron and steel, was registered under the Central Excise law. During an audit covering 2014-15 to June 2017, the department discovered that the company had availed CENVAT credit of ₹2,55,917 on items like panel enclosures and motors. These goods were traded along with its own manufactured products, but no evidence was produced to show that they were used in the manufacture of dutiable goods or in taxable services.

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Once the discrepancy was pointed out, the company paid the disputed credit along with interest through its March 2019 GSTR-3B return.

Stuti Saggi, appearing for the appellant argued that the credit was initially availed under the belief that the inputs were eligible, but once the irregularity was detected during audit, the company immediately reversed the credit and paid interest.

It was submitted that under Section 11A(2) of the Central Excise Act, 1944, once tax and interest are paid before the issuance of a show cause notice, proceedings ought to be closed, and penalty could not be justified.

Chitra Srivastava appearing for the revenue submitted that the appellant never demonstrated that the impugned items were used in manufacturing activity. It was argued that the inadmissible credit was detected only through departmental audit and that the appellant’s conduct amounted to suppression, warranting both demand and penalty.

The Bench comprising Sanjiv Srivastava, Member Technical, held that the CENVAT credit was indeed wrongly availed, as no proof was provided that the items were used in manufacture. The Tribunal rejected the appellant’s claim that interest had already been settled, since no evidence of such payment was furnished despite being given time.

However, the Tribunal agreed that the penalty under Section 11AC of the Central Excise Act, 1944 was not sustainable. Relying on Section 11A(2), it observed that once duty and interest are deposited before notice, continuation of penalty proceedings is barred.

The appeal was partly allowed to the extent of setting aside the penalty under Section 11AC of the Central Excise Act, 1944.

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However, the CESTAT sustained the demand of ₹2,55,917 towards wrongly availed CENVAT credit along with interest, holding that the appellant failed to prove admissibility of the credit.

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