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Excise Tribunal disposes Case related to incorrect application of certain Cenvat Credit Rules, 2004

CLR Editorial Notes: The case refers to an appeal filed with the CESTAT against CCE, Hyderbad on incorrect application of an Excise law Section for a CENVAT credit case and corresponding appeal to set aside the penalty. It was contested by the appellant that the rule under which the penalty notice has been served does not apply.

The tribunal has held that this is a case of mistake of law and not mistake of fact. The penalty based on the facts is correct and the appellant cannot escape the same, while the rule which needs to be applied on the given facts is incorrect and the Commissioner should have sent a corrigendum instead.  There is a clear distinction between the two. The former cannot be rectified at later stage but the latter is rectifiable subject, of course, to legal constraints. In the present case, the show-cause notice was issued to the appellant for the sole purpose of penalizing them for the offence alleged therein. It alleged the facts correctly but invoked the law wrongly. There being no period of limitation for an action for penalty, the Department could have issued a corrigendum to the show-cause notice. But such corrigendum should have been issued before adjudication of the show-cause notice.


2012-ITS-2645-CESTAT-M/s. Cauvery Iron & Steel (India) Ltd. -Vs- CCE, Hyderabad , Date of decision:27/11/2012

CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
SOUTH ZONAL BENCH AT BANGALORE
Bench – SMB
Court I

Date of Hearing:27/11/2012
Date of decision:27/11/2012

Appeal No.E/576/2011

(Arising out of Order-in-Appeal No.109/2010(H-IV)CE dt. 13/12/2010 passed by CC,CE&ST(Appeals), Hyderabad)

For approval and signature:

Hon ble Mr. P.G. Chacko, Member(Judicial)

M/s. Cauvery Iron & Steel (India) Ltd. ..Appellant(s)

Vs.

CCE, Hyderabad ..Respondent(s)

Appearance

Mr. B. Venugopal, Advocate for the appellant.
Mr. A.K. Nigam, Additional Commissioner(AR) for the respondent.

Coram: Hon ble Mr. P.G. Chacko, Member(Judicial)

FINAL ORDER No._______________________

In this appeal filed by the party, the issue, broadly speaking, is whether under Rule 15 of the CENVAT Credit Rules, 2004 (CCR, 2004, for short), a penalty is liable to be imposed on the appellant on the facts of this case. The undisputed facts of this case are: (a) that the appellant was a registered Central Excise dealer during the material period and was, in that capacity, entitled to issue invoices for CENVAT credit purposes; (b) that the appellant had received materials (HRC plates etc.) from M/s. Steel Authority of India Ltd. and M/s. Abhishek Steels (manufacturers) under cover of excise invoices; (c) that they issued their own invoices to M/s. Laxmi Constructions without supply of the materials specifically described in the said invoices; (d) that the materials specifically described in the said invoices issued by the registered dealer were supplied to M/s. Tubes & Allied Products; (e) that M/s. Laxmi Constructions took CENVAT credit of the duty mentioned in the said invoices; (f) that, on the ground of the appellant having issued CENVATable invoices without supply of materials to M/s. Laxmi Constructions, a show-cause notice was issued to the appellant for imposing penalty on them under Rule 15 of the CCR, 2004; (g) that this proposal was contested by the appellant; (h) that the adjudicating authority imposed a penalty of Rs.1,01,326/- on the appellant under Rule 15 of the CCR, 2004 read with the proviso to Section 11A(1) of the Central Excise Act on the ground of contravention of Rule 3 of the CCR, 2004; and (i) that this penalty was sustained by the Commissioner(Appeals).

2. The argument of the learned counsel for the appellant is that Rule 15 is not applicable to the facts of this case. In this connection, he has elaborately referred to various sub-rules of Rule 15. At best, the Department could have invoked Rule 26 of the Central Excise Rules, 2002, but not even a corrigendum was issued by them to correct the error. It is argued that, at this stage, the above error is incorrigible. The learned counsel finally prays for setting aside the penalty. The argument of the learned Additional Commissioner(AR) is that the invocation of wrong provision of law is a legal error which can be rectified at any stage. In this connection, he claims support from Vee Kay Enterprises vs. CCE [2011(266) 436 (P&H)].

3. I have given careful consideration to the submissions. At the outset, I may state that the case law cited by the learned Additional Commissioner(AR) is not apposite to the present context inasmuch as, in that case, the relevant issue was whether a penalty under Rule 25 could be imposed on a dealer by invoking the ingredients of Rule 26 of the Central Excise Rules. On the facts of that case, the Hon ble High Court found that both Rule 25(1)(d) and Rule 26(1) were applicable.

4. In the instant case, the controversy is around applicability of Rule 15 of the CCR, 2004 or Rule 26 of the Central Excise Rules, 2002. As it is not in dispute that the appellant issued CENVATable invoices to M/s. Laxmi Constructions without supply of the materials specifically described in such invoices, their conduct would attract sub-rule (2) of Rule 26 of the Central Excise Rules, 2002. This provision had come into force w.e.f. 01/03/2007. The above offence was committed by the appellant in April 2007. The Department could very well have invoked Rule 26(2) to penalize the offender. However, they chose Rule 15 of the CCR, 2004. It also needs to be mentioned that the party, in their reply to the show-cause notice, did not claim inapplicability of Rule 15 and, in such circumstances, it did not occur to the Department that a corrigendum should be issued to correct the legal error. It appears, it was before the Commissioner(Appeals) that the party, for the first time, took the contention that Rule 15 ibid was not applicable. This contention is being reiterated before the Tribunal.

5. On the facts of this case, it cannot be gainsaid that Rule 15 is not applicable and, therefore, the penalty imposed thereunder is liable to be set aside, and it is ordered accordingly. In the result, the appeal succeeds.

6. One important question survives for consideration and the same is whether the legal mistake committed by the Department can be corrected to ensure that the offender does not escape punishment under the Central Excise law. There is a clear distinction between a mistake of fact and a mistake of law. The former cannot be rectified at later stage but the latter is rectifiable subject, of course, to legal constraints. In the present case, the show-cause notice was issued to the appellant for the sole purpose of penalizing them for the offence alleged therein. It alleged the facts correctly but invoked the law wrongly. There being no period of limitation for an action for penalty, the Department could have issued a corrigendum to the show-cause notice. But such corrigendum should have been issued before adjudication of the show-cause notice. The Department cannot be permitted to issue such corrigendum or to issue a fresh show-cause notice after adjudication of the case for, to allow them to do so would amount to multiplicity of proceedings.

7. The appeal stands disposed of.

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