ORDER
T.K. Jayaraman, Member (T)
1. This appeal has been filed against Order-in-Appeal No. 239/04 CE dated 31.12.04 passed by the Commissioner of Central Excise II Hyderabad.
2. The appellants have two units which are close by. One unit manufactures ingots (furnace division) and sends them to re-rolling division for further conversion to re-rolled products of various sizes. On investigation, it was seen that there was under-valuation of the goods which are sent from the first unit to the second unit. In other words, the captively consumed goods were alleged to have been under-valued. The department detected the lapse. However, on the request of the departmental officials, the appellant paid the differential duty and later took Cenvat credit. Revenue proceeded against the appellant on the ground that an amount of Rs. 3,37,989/- being the credit was wrongly taken in violation of the provisions of Rule 7(b) of Cenvat Credit Rules 2002. Equal penalty was imposed under Rule 30 of Cenvat Credit Rules 2002 read with Section 11AC of the Central Excise Act 1944. Interest under Section 11AB was also demanded. The Commissioner (Appeals) modified the order of the Original Authority by reducing the penalty to Rs. 50,000/-. Otherwise he upheld the Original Order. The appellants are highly aggrieved over the impugned order of the Commissioner.
3. Shri Kamala Vishnu learned advocate appeared for the appellants and Shri K. Sambi Reddy learned JDR for the revenue.
4. Heard both sides. We find that when the DGCI officers detected the under-valuation and persuaded the appellants to pay the differential duty of Rs. 3,37,989/- the same was promptly paid on 4.3.2003 even before issue of any show case notice. Since the goods are captively consumed in the second unit, the appellants took Cenvat credit. After one year, the show cause notice dated 21.2.2004 was issued on the ground that the credit was wrongly taken in violation of Rule 7(1)(b) of Cenvat Credit Rule 2002. We find that similar issue cropped up in the appeal before this bench in the case of Karnataka Soaps and detergents Ltd v. CCE Mysore/Bangalore 2005 (192) ELT 892 (Tri-Bang) wherein it was held that in the case of stock transfer, prohibition under Rule 7(1)(b) of Cenvat Credit Rules is not applicable even if additional amount of duty becomes recoverable from one unit on account of fraud, suppression of fact etc. It should also be appreciated that the entire exercise is revenue neutral and there is no substance in the allegation of intention to evade central excise duty. In these circumstances the penalty imposed is not justified. Hence we allow the appeal, by following the ratio of the above decision, with consequential relief if any.
(Operative portion of the order already pronounced in open court on conclusion of the hearing)