2008 (11) TMI 485 - AT - Central Excise

Area based exemption - Kutch - Self-credit procedure under para 2A of Notification No. 39/2001-C.E

Summary

Issues Involved:
1. Entitlement to the benefit of refund of duty under Notification No. 39/2001-C.E.
2. Limitation period for issuing demand notices under Section 11A of the Central Excise Act, 1944.

Issue-wise Detailed Analysis:

1. Entitlement to the Benefit of Refund of Duty:

The appellants, engaged in the manufacture of biscuits and corrugated boxes, availed the benefit of Notification No. 39/2001-C.E., which allowed them to take credit of duty paid in cash and submit a statement to the jurisdictional AC/DC. During May, July, and September to December 2005, the appellants utilized Rs. 20,19,827/- from the Cenvat credit account for payment of service tax on GTA services, which they later realized was in violation of the Notification. They subsequently deposited the tax amount in cash and informed the department.

The lower authorities held that the appellants, having opted for the self-credit facility, were responsible for ensuring the correct amount of duty paid in cash was credited. The authorities determined that the self-credit taken was irregular as it did not comply with the Notification's conditions, leading to a demand for recovery of the excess amount.

The appellants argued that they had substantive compliance with the Notification since the total Cenvat credit available was significantly higher than the amount utilized for service tax. They contended that the payment made in cash on 4-4-06 rendered the excess refund revenue neutral, and the intention behind the Notification was fulfilled.

The Tribunal concluded that the appellants' utilization of Cenvat credit for service tax payment rendered the self-credit of refund irregular and recoverable. The Notification required monthly accounting of Cenvat credit utilization and calculation of eligible refund amounts. The appellants' subsequent cash payment could not regularize the omission made earlier, and they should have repaid the excess amount with interest.

2. Limitation Period for Issuing Demand Notices:

The appellants contended that the demand for May and July 2005 was barred by limitation as the notices were issued beyond one year from the relevant date. The Notification required the AC/DC to determine the refundable amount and intimate it by the 15th of the next month, but the correct amount was only communicated on 30-6-06.

The Tribunal found that the demand for May and July 2005 was indeed barred by limitation. Clause 2A(g) of the Notification stipulated that the demand for irregular refund must be made within one year from the 20th of the next month during which the irregular credit was taken. Therefore, the demand for these months was not sustainable.

Separate Judgments:

Member (Technical):
The Member (Technical) held that the appellants were not entitled to the benefit of the Notification for the period September to December 2005 due to non-compliance with its conditions. The demand for May and July 2005 was barred by limitation, but the confirmation of the balance amount of duty was upheld.

Member (Judicial):
The Member (Judicial) opined that the subsequent payment of service tax in cash corrected the discrepancy, and the credit taken was admissible. The appeal was allowed in toto, setting aside the impugned order with consequential relief to the appellants.

Third Member (Judicial):
The Third Member (Judicial) concurred with the Member (Judicial) that the benefit of the Notification should be allowed for the entire period, including September to December 2005. The appeal was allowed in its totality.

Final Order:
In view of the majority decision, the impugned order was set aside, and the appeal was allowed in its entirety.