2010 (3) TMI 661 - HC - Central Excise

Cenvat credit Input removed as such - mistake had occurred only due to the system generated invoices treating the goods as finished goods and that there was no mistake committed knowingly - due to oversight on the inadvertent system error the petitioner failed to notice that some of the inputs removed as such were received from registered dealer at the old rate of 14%/10% and while clearing such goods they debited duty at the rate applicable then at 8% - Held that - there was no willful evasion of duty explicitly brought out in the show-cause notice - Set aside and the writ petition is allowed

Issues Involved:
1. Availment and reversal of Cenvat credit.
2. Alleged deliberate miscalculation of excise duty.
3. Imposition of punitive measures under Notification No. 32/2006-C.E. (N.T.).
4. Interpretation of the term "knowingly" in the context of the notification.
5. Previous violations and their impact on current proceedings.

Detailed Analysis:

1. Availment and Reversal of Cenvat Credit:
The petitioner, engaged in manufacturing motor vehicle components, availed Cenvat credit on CR coils from May 2009 to October 2009. Upon inspection on 29-10-2009, it was found that the petitioner had cleared CR sheets without paying the duty equal to the credit availed as per Rule 3(5) of the Cenvat Credit Rules, 2004. The petitioner admitted the mistake and paid the differential duty of Rs. 19,41,917/- on 31-10-2009, followed by interest of Rs. 52,377/- on 25-11-2009.

2. Alleged Deliberate Miscalculation of Excise Duty:
The petitioner argued that the miscalculation of duty at 8% instead of the applicable 10%-14% was due to a system-generated error treating inputs as finished goods. The respondents, however, contended that this was a deliberate act to partially retain the credit of duty paid on inputs, which was reflected in the ER-1 returns.

3. Imposition of Punitive Measures under Notification No. 32/2006-C.E. (N.T.):
The respondents proposed punitive measures under Notification No. 32/2006-C.E. (N.T.), as amended by Notification No. 15/2009-CE. (N.T.), citing the petitioner's deliberate act. Consequently, the petitioner was restrained from availing the facility of monthly payment of excise duty and was required to pay duty on a daily basis from 15-2-2010 to 31-5-2010. Additionally, the petitioner was prohibited from utilizing Cenvat credit during this period.

4. Interpretation of the Term "Knowingly":
The petitioner argued that the error was unintentional and due to system-generated invoices, with no mala fide intention to defraud the Revenue. The term "knowingly" in the notification implies a conscious violation. The Court noted that unless the Revenue could show that the petitioner knowingly made use of the computer-generated invoices to gain an unmerited advantage, it was difficult to attribute motive and penalize the petitioner.

5. Previous Violations and Their Impact on Current Proceedings:
The respondents pointed out that the petitioner had committed a similar violation earlier, which was settled through the Settlement Commission in July 2009. However, the Court found no explicit reference to wilful evasion of duty in the Settlement Commission's order. The Court emphasized that the notification's penal consequences apply only when a violation is committed knowingly, which was not sufficiently established in this case.

Conclusion:
The Court concluded that the penal restrictions under the notification could not be applied to the petitioner in the absence of material evidence showing a knowing violation. The order imposing restrictions was set aside, and the writ petition was allowed with no costs. The connected miscellaneous petitions were also closed.

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