Penalty under Section 11AC of the Central Excise Act, 1944, cannot be imposed if the irregularly availed CENVAT credit is voluntarily reversed prior to the issuance of a Show Cause Notice, as the determination of duty is a condition precedent for such penalty.

PER: S.K. MOHANTY

Heard both sides and perused the case records.

2. Brief facts of the case are that the appellants are engaged inter alia, in the manufacture of Clinical Dialyzers, Clinical Syringes and Needles, falling under Chapter 90 of the First Schedule to the Central Excise Tariff Act, 1985. The appellants avail CENVAT Credit of Central Excise duty paid on the inputs and service tax paid on the input services. During the disputed period December 2010 to April 2014, the appellants had availed irregular CENVAT Credit, which were subsequently reversed by them. Since the CENVAT Credit was irregularly availed by the appellants, the Department had initiated show cause proceedings against them, seeking recovery of the CENVAT demand. The Show Cause Notice (SCN) dated 09.12.2015, issued in this regard, was adjudicated by the Additional Commissioner of Central Excise and Service Tax, Kolhapur vide order dated 31.03.2017, in confirming the proposals made therein. On an appeal against the said adjudication order dated 31.03.2017, the learned Commissioner (Appeals), Central Tax, Pune-I vide the impugned order dated 21.03.2018 has set aside the adjudication order, insofar as it had confirmed the CENVAT demand on the appellants. However, the impugned order has reduced the quantum of penalty imposed in the original order, holding that the appellants had already reversed the CENVAT Credit and as such, as per the provisions of Section 11AC of the Central Excise Act, 1944, they are liable to pay only 50% of the penalty amount. The impugned order, insofar as it has imposed penalty, the appellants have assailed the same by way of filing this appeal before the Tribunal.

3. On perusal of the case records, more particularly the SCN dated 09.12.2015, we find that at paragraph 11 therein, there is a specific mention that the appellants had reversed the CENVAT Credit on 30.01.2015, 23.01.2015 & 30.09.2014. Since the SCN dated 09.12.2015 was issued after reversal of CENVAT Credit by the appellants, we are of the view that the case of the appellants should fall under the provisions of sub-section (2) of Section 11A of the Central Excise Act, 1944. Under the said provisions, no SCN was required to be served, in the eventuality, where the Central Excise duty/CENVAT Credit has already been reversed by the assessee. The impugned proceedings were invoked sub-section (4) of Section 11A of the Act of 1944, holding that the appellants had indulged into the activity of fraud, collusion, willful misstatement, in availing irregular CENVAT Credit. However, on reading of the case records, we find that the irregularly availed CENVAT Credit was suo motu reversed by the appellants and reversal particulars were also duly intimated to the Department by the appellants. Further, the appellants have also captured the CENVAT particulars in their periodical Excise Returns filed before the jurisdictional Central Excise authorities. Thus, under such circumstances, it cannot be alleged that the ingredients itemized in sub-section (4) of Section 11A ibid are attracted, for confirmation of the CENVAT demand on the appellants. We find that by appreciating the legal provisions, the learned Commissioner (Appeals) has dropped the CENVAT demand confirmed in the adjudication order. In view of the fact that no SCN was required to be issued in the case, where the CENVAT Credit was reversed prior to issuance of the SCN, we are of the view, that the proceedings initiated only for imposition of penalty under Section 11AC ibid shall not stand the judicial scrutiny. We find that an identical issue was dealt with by the Hon'ble Karnataka High C