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Judgment
Hemambika R. Priya, J
The present appeal has been filed by M/s K. S. Infra Transmission Private Limited (hereinafter referred to as the appellant) to assail the Order-in-Original No. JAI-EXCUS-000-COM-27-19-20 dated 30.08.2019 whereby the Commissioner has confirmed the demand of Rs. 5,25,67,213/- along with interest and penalty.
The brief facts of the case are that the appellant was engaged in the manufacturing of General Fabrication and Transformer Tank falling under Tariff Item 73082019 and 85049010 of the first schedule to the erstwhile Central Excise Tariff Act, 1985 and having Central Excise Registration under erstwhile Central Excise regime. The appellant appeared to have wrongly availed Cenvat Credit amounting to Rs. 5,25,67,213/- on the goods which are not inputs and the same have been cleared as such during the Financial Year 2015-16, 2016-17 and 2017-18 (upto June, 2017) in contravention of Rule 3 of the Cenvat Credit Rules, 2004. During the course of audit of the records of the appellant, the Dept. observed that the appellant had availed Cenvat Credit of Central Excise Duty paid on inputs and capital goods and credit on goods namely Aluminium Rod (Chapter 76), Aluminium Wire (Chapter 76) and PVC Compound (Chapter 39) during the Financial Year 2015-16, 2016-17 and 2017-18 (upto June, 2017), which were not their inputs as the said goods have no relationship whatsoever with the manufacture of the appellant's final products viz. General Fabrication and Transformer Tank and further the same had been cleared as such. Accordingly, a show cause notice dated 27.02.2019 was issued to the appellant calling upon to show cause and explain as to why:-
(1) An amount of Rs. 5,25,67, 213/- (including cess) should not be demanded and recovered from them under Rule 14 of the Cenvat Credit Rules, 2004 read with proviso to Section 11A(4) of the Central Excise Act, 1944 read with Section 174 of the CGST Act, 2017;
(ii) Interest should not be recovered from them under Rule 14 of the Cenvat Credit Rules, 2004 read with Section 11AA of the Central Excise Act, 1944 read with Section 174 of the CGST Act, 2017; and
(iii) Penalty should not be imposed upon them under Rule 15 of the Cenvat Credit Rules, 2004 and Section 11AC of the Central Excise Act, 1944 read with Section 174 of the CGST Act, 2017 for suppression of facts and contravention of above provisions.
The said show cause notice was adjudicated vide the impugned order dated 30.08.2019 wherein the Commissioner confirmed the demand of Rs. 5,25,67,213/- along with interest and equal amount of penalty. Hence, the appellant has filed the present appeal.
Learned Counsel for the appellant submitted that the point of dispute in the present appeal is that the appellant had wrongly availed Cenvat Credit on the goods which are not inputs as defined in the Cenvat Credit Rules, 2004. However, it is an admitted fact that the appellant had cleared said goods "as such" as per Cenvat Credit Rules, 2004, on payment of duty equal to the credit. Once the audit team had pointed out, the appellant calculated the interest liability amounting to Rs. 1,23,601/- and paid the said interest liability as well. He further submitted that there is no act of evasion of duty but only a procedural breach. The learned counsel stated that what was most important fact in the case was that the appellant had already debited the whole credit taken as such, under Cenvat Credit Rules, 2004 at the time of clearances of such input. As such, the demand confirmed by the learned Adjudicating Authority in the impugned order is bad in the eye of law, deserves to be set aside. Furthermore, appellant had duly paid the interest.
3.1 Learned Counsel further submitted that the appellant had paid appropriate Central excise duty and there was no revenue loss to the Government. He added that the appellant had shown clearances in their monthly ER-1 returns, Copies of ER-1 returns, in which showing clearances as such for involved period.
3.2 As regard the demand being barred by time, the Learned Counsel submitted that the show cause notice was issued on 27.02.2019 for the period 2015-16 to June 2017, therefore, the demand was time barred as the fact of availing the Cenvat credit was within the knowledge of the department. The Appellant had submitted all required documents as per law and were also filing their monthly returns regularly. Consequently, there is no suppression of fact or any intention to evade duty on part of the appellant. Moreover, the only reason for invoking the extended period of limitation is given in the show cause notice is that the appellant had suppressed the facts from the department. In this context, the learned counsel submitted that when all facts required to be declared as per the law had been declared and no specific reason has been given as to which facts had been suppressed, then the allegation of suppression of facts cannot be made. In this regard, the learned counsel relied upon the following case laws:-
• SOTC Travels Services Private Limited (Formerly known as Kuoni Travel India Private Limited) vs. Principal Commissioner of Central Excise Delhi reported as 2021-TIOL-607-CESTAT-DEL.
• Geep Industrial Syndicate Limited vs. Commissioner of Central Excise, Allahabad reported as 1994 (74) ELT 888 (Tri.-All)
• Gajendra Enterprises vs. CCE, Daman 2008 (232) ELT 445 (Tri.-Ahmd.)
• Vanaz Engineers Limited-2009 (246) ELT 794
3.4 As regards the imposition of penalty u/s 11AC of the Act, learned counsel for the appellant submitted that mandatory penalty can be imposed only in those cases where duty of excise has been not paid by reason of frauds, collusion or any wilful mis-statement or suppression of facts or contravention of any of the provisions with intent to evade payment of duty. There is no case of any suppression of fact, fraud, collusion etc. He prayed that the instant appeal may be allowed and the impugned order may be set-aside.
The Learned Authorized Representative for the Department submitted that the present show cause notice had arisen after investigations initiated by the Department and the fact of the appellant availing fraudulent Cenvat Credit would not have been detected. He stated that the appellant had availed and utilized Cenvat Credit of Rs.2,19,82,733/- (Rupees Two Crore Nineteen Lakhs Eighty Two Thousand Seven Hundred and Thirty Three Only) by resorting to fraud and suppression of facts with an intent to enrich themselves with inadmissible Cenvat credit, which otherwise was not admissible to them. He submitted that the extended period under Section 11A(4) of Central Excise Act, 1944 is invokable for recovery of Cenvat Credit of Rs.2,19,82,733/- under Rule 14 of the Cenvat Credit Rules, 2004. Thus, Cenvat credit Rs.2,19,82,733/- (Rupees Two Crore Nineteen Lakhs Eighty Two Thousand Seven Hundred and Thirty Three Only) availed & utilized is not admissible to the appellant and is liable to be disallowed from the appellant under Rule 14 of the Cenvat Credit Rules, 2004 read with Section 11A(4) of the Central Excise Act, 1944.
4.1 The ld. AR contended that the notice under Section 11A(1) states that the incorrect availment of Cenvat credit was the result of a conscious and deliberate wrong doing and the impugned order has a legally tenable finding as to how the provision of Section 11AC is attracted. The ld. AR further submitted that the appellant has availed and utilized fraudulent Cenvat Credit of Rs.2,19,82,733/- by violating the provisions of Rule 3, 4 & 9 of CENVAT Credit Rule, 2004, the learned Authorized Representative further submitted that the appellant had deliberately suppressed the fact of taking Cenvat Credit on goods which were not inputs with an intent to evade Central Excise Duty on finished goods, which was not admissible to them. Consequently, he contended that the appellant by their act of omission and commission rendered them liable to penalty under Rule 15(2) of the Cenvat Credit Rules, 2004 read with Section 11 AC(1)(c) of the Central Excise Act, 1944. The learned AR also submitted that Rule 14 of Cenvat Credit Rues 2004 clearly provides that where the CENVAT credit has been taken and utilized wrongly or has been erroneously refunded, the same along interest is to be recovered from manufacturer and the provisions of Sections 11A and-11AA of the Excise Act or Sections 73 and 75 of the Finance Act, stall apply mutatis mutandis for affecting such recoveries.
We have heard both the parties and perused the case records.
In order to appreciate the arguments of the Ld Counsel for the appellant and the Ld AR, it is important to understand the scheme of the Cenvat Credit. CENVAT stands for Central Value Added Tax. CENVAT Credit Rules, 2004 was introduced to allow both manufacturers and service providers to take input credit on goods and services, apart from capital goods. Prior to the introduction of CENVAT, credit was provided under the MODVAT regimen for manufacturers and with the introduction of Service Tax Credit Rules, 2002, credit was provided for service tax paid by service providers. The CENVAT Credit Rules, 2004 was introduced to unify and merge the provisions thereby allowing cross sectoral availment and utilization of credit. Thus, the scope of CENVAT Scheme was enlarged to include credit not only to a manufacturer in respect of inputs, input services and capital goods, but also to cover the service providers with similar credit facility. Thus, as per the said scheme, an input eligible for credit has been defined by the CENVAT Credit Rules as:
“RULE 2. Definitions. —(1) In these rules, unless the context otherwise requires,-
……………………………………………………………………………………………………….
(k) “input” means–
(i) all goods used in the factory by the manufacturer of the final product; or
(ii) any goods including accessories, cleared along with the final product, the value of which is included in the value of the final product and goods used for providing free warranty for final products; or
(iii) all goods used for generation of electricity or steam 39[or pumping of water] for captive use; or
(iv) all goods used for providing any 40[output service; or]; 41[(v) all capital goods which have a value upto ten thousand rupees per piece .] but excludes-
(A) light diesel oil, high speed diesel oil or motor spirit, commonly known as petrol;
[(B) any goods used for -
(a) construction or execution of works contract of a building or a civil structure or a part thereof; or
(b) laying of foundation or making of structures for support of capital goods,
except for the provision of service portion in the execution of a works contract or construction service as listed under clause (b) of section 66E of the Act;]
42[(C) capital goods, except when,-
(i) used as parts or components in the manufacture of a final product; or
(ii) the value of such capital goods is upto ten thousand rupees per piece;]
(D) motor vehicles;
(E) any goods, such as food items, goods used in a guesthouse, residential colony, club or a recreation facility and clinical establishment, when such goods are used primarily for personal use or consumption of any employee; and
(F) any goods which have no relationship whatsoever with the manufacture of a final product.
Explanation. – For the purpose of this clause, “free warranty” means a warranty provided by the manufacturer, the value of which is included in the price of the final product and is not charged separately from the customer;]”
6.1 As per the legal provisions quoted above, a manufacturer is permitted to avail credit of the duty paid on inputs, which are used in the manufacture of final product. In the instant case, it is noted that the appellant had availed credit on Aluminium Rod (Chapter 76), Aluminium Wire (Chapter 76) and PVC Compound (Chapter 39) during the Financial Year 2015-16, 2016-17 and 2017-18 (upto June, 2017). As the said goods were not inputs, the appellant was not eligible to avail the credit of the duty paid on such inputs. We find that the order in original has noted that these were not their inputs as the said goods have no relationship whatsoever with the manufacture of the appellant's final products viz. General Fabrication and Transformer Tank. We find that the impugned order has noted that Aluminium Wire, Aluminium Rods and PVC Compound was not declared as raw materials in Form B of the Central Excise Registration of the appellant. In view of the above, we hold that the appellant had incorrectly availed the credit of duty on goods which were not inputs for their final product.
However, we find that the Ld Counsel for the appellant has submitted that these inputs were cleared as such on payment of duty equivalent to the credit availed. It is a settled law that once credit availed stands reversed, the same is equivalent to credit not having being taken. In this context, we take note of the judgment of the Hon’ble Supreme Court in in the case of Chandrapur Magnet Wires (P) Ltd. versus Collector of Central [1996 (81) E.L.T. 3 (S.C.)], wherein the Apex Court held that once credit is debited, it is as good as not taking credit at all. Para 7 of the judgment reads as follows: -
“7. In view of the aforesaid clarification by the Department, we see no reason why the assessee cannot make a debit entry in the credit account before removal of the exempted final product. If this debit entry is permissible to be made, credit entry for the duties paid on the inputs utilised in manufacture of the final exempted product will stand deleted in the accounts of the assessee. In such a situation, it cannot be said that the assessee has taken credit for the duty paid on the inputs utilised in the manufacture of the final exempted product under Rule 57A. In other words, the claim for exemption of duty on the disputed goods cannot be denied on the plea that the assessee has taken credit of the duty paid on the inputs used in manufacture of these goods”.
7.1 In view of the above judgment which has been followed by this Tribunal is several decisions, viz., Linkwell Telesystems Pvt Ltd vs Commissioner of Central Tax, CGST, Secunderabad vide Final Order A/30040/2022 dated 11.03.2022 in respect of Excise Appeal No. 2215 of 2012; M/s. Vineet Polyfab Pvt Limited vs Commissioner, Surat, vide Final Order no A/11109 / 2019 dated 11.7.2019 in Excise Appeal No. 10676 of 2019, and the settled point of law, we hold that the demand of Cenvat Credit on such goods cannot be sustained, and is liable to be set aside. Consequently, we hold that no penalty is leviable on the appellant.
7.2. However, we go on note that even though the Ld Counsel has submitted that the appellant has reversed the Cenvat credit availed on these goods when cleared as such, the impugned order observes
as follows:-
“5.9. The Noticee has claimed that they had wrongly availed Cenvat Credit of Rs 5,25,67,213/- by debiting Cenvat Credit on clearances made as such of the impugned goods i.e., Aluminium Rod, Aluminium Wire and PVC Compound and shown such details in the ER-1 Returns filed by them, however they did not supply the ER-1/ER-6 during the pre-consultation stage or in defence reply or at the time of personal hearing or till date. The Notice has also supplied chart showing bill-wise details of purchase and clearances as such of the impugned goods and a chart showing calculation of interest amount on the Cenvat credit utilized for verification, but it has been observed that the said documents do not bear the signature of the Noticee or their representative. Further, a detailed reconciliation is required regarding availment of Cenvat credit on the impugned goods and their as such clearances and utilization of Cenvat Credit along with documents showing as such clearance i.e., Cenvat Credit Register related to the inputs received in terms of Cenvat Credit Rules, 2004, sale invoices, copies of ledgers of the purchaser and buyers etc. Though the representative agreed to produce all such returns by 13.07.2019, yet, till this date no such document were produced.”
7.3 In view of the above, we are of the opinion that the appellant should be given the opportunity to present all documentary evidences to substantiate their claim of having reversed the Cenvat Credit at the time of clearance of the Aluminium Rod, Aluminium Wire and PVC Compound at the time of clearance as such before the adjudicating authority, who will decide the matter afresh, keeping in view the judgments quoted above.
7.4 As regards the interest, we note that the appellant has claimed that they have paid the interest liable for the period from the date of availment to the date of reversal. The impugned order has already appropriated the said interest amount. However, liberty is given to the appellant to produce documents and establish the correctness of the said interest amount paid and so appropriated.
Accordingly, we set aside the impugned order and allow the appeal by way of remand.
(Order pronounced in the open Court on 08.10.2024)