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2006 (12) TMI 383 - AT - Central ExciseCenvat/Modvat - capital goods - Demand for interest and penalty imposed - SCN issued to recover the balance - manufactured grey fabric of cotton falling under the Chapter Headings 52.07, 52.08, and 52.09 of the Schedule to the Central Excise Tariff Act, 1985 - HELD THAT:- The assessee did not have a production programme culminating with setting up of machinery for manufacturing processed fabric or articles of apparel which they had intimated to the department. A classification list was filed on 18-5-2001, which showed woven fabric of cotton containing 85% or more by weight of cotton as the only dutiable item along with other non-dutiable products manufactured by the assessee. Apparently this entry was meant to cover clearances of such fabrics got manufactured on job work basis. As the appellants did not manufacture any dutiable goods in May, 2001 or in the near future, it cannot be inferred that the said classification list was filed in view of their imminent production of dutiable goods. The appellants did not have any intention of using the subject capital goods in the manufacture of dutiable final products which they had intimated to the department as in Kailash Auto Builders case [2001 (10) TMI 164 - CEGAT, BANGALORE]. Similarly, the department was not informed that the appellants had a project for setting up a composite mill for manufacture of excisable goods chargeable to duty as in the case of Bhasker Industries Ltd. (supra). Therefore, the ratio of those two decisions is not relevant to the subject case. The Suryaroshini decision was upheld by the Supreme Court. A similar ratio laid down by the Tribunal in Grasim Industries Ltd. case [2004 (3) TMI 277 - CESTAT, CHENNAI] also was upheld by the Apex Court. Therefore, the demand as regards the capital goods credit taken in the impugned order is unassailable. We find that the appellants had intimated the jurisdictional Dy. Commissioner, the details of the goods cleared by the unit and the fact of import of capital goods and the CVD paid, of which they were entitled to take Cenvat credit. The Dy. Commissioner in his letter, approved the procedure followed by the appellants and specifically informed them that “in the event of clearing the processed fabric without payment of duty, they are not eligible to take Cenvat credit on both inputs and capital goods”. Considering the fact that the assessee had cleared dutiable goods during the material time though not manufactured by them, and that they had intimated the procedure followed by them to the department, the appellant is entitled to benefit of doubt that they had bonafidely believed in their eligibility to the impugned credit. Also, the credit remains unutilized in their accounts even today. In the circumstances, we find that the appellants do not deserve a penalty u/s 11AC of the Act. The decision in Zunjarrao Bhikaji Nagarkar [1999 (8) TMI 142 - SUPREME COURT] mandates that when a person is found liable to penalty under Rule I73Q, the adjudicating authority does not have discretion not to impose penalty, but has discretion only as regards the amount of penalty. Rule 13 of the Cenvat Credit Rules is also similar as the relevant language considered in Zunjarrao Bhikaji Nagarkar case. Thus, we hold that the appellants are liable to penalty under Rule 173Q/Rule 13(2). The appeal filed by M/s. Precot Mills Ltd. is thus allowed by way of remand in the above terms. Needless to say that the appellants shall be afforded a reasonable opportunity of being heard in the remand proceedings. Refrain from demanding interest u/s 11AB on the credit - HELD THAT:- We find that as per the statutory provisions, it is mandatory that when Cenvat credit has been taken wrongly, the same shall be recovered along with interest. In view of the unambiguous mandate of the law, the Commissioner’s order not demanding interest as per the rules is incorrect. Thus, we allow the department’s appear and order that the appellants shall pay appropriate interest on the wrongly taken Cenvat credit to be determined in de novo proceedings.
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