2014 (6) TMI 889 - AT - Central Excise

Denial of CENVAT Credit - Invocation of extended period of limitation - Imposition of penalty - Bonafide belief - Difference of opinion - Majority order - whether the extended period of limitation could have been invoked in the present case for confirmation of duty demand - Held that - Rule 2(c) Cenvat Credit Rules, as it stood at the relevant time defined exempted goods as goods which are exempt from the whole of the duty of excise leviable thereon, and includes goods which are chargeable to Nil rate of duty, and final products was defined as excisable goods manufactured or produced from inputs except matches. During the material point of time, the electricity was not an excisable item at all; therefore, it was not exempted goods nor was it a final product. Though Rule 2(f) included furnace oil used in the manufacture of electricity in the category of inputs, credit was available only when electricity was consumed within the factory of production. Therefore, no Cenvat credit of the duty paid on inputs used in the manufacture of electricity which was used outside the factory could have been taken. In the present case before me, the electricity generated was sold outside or taken out of the factory for use in the residential colony etc. Therefore, furnace oil which was used for the generation of electricity did not qualify as an input. Therefore, the availment of credit on furnace oil was not clearly permitted under the law. A belief can be said to be bona fide only when it is formed after all reasonable considerations are taken into account as held by this Tribunal in the case of Interscape v. Commissioner of Central Excise, Mumbai-I - 2005 (9) TMI 192 - CESTAT, MUMBAI . In Winner Systems - 2005 (7) TMI 219 - CESTAT, MUMBAI , it was held that blind belief cannot be a substitute for bona fide belief. Applying the ratio of these decisions to the facts of the present case, as can be seen from the records, the appellant neither sought any legal opinion nor any clarification was sought from the department as to the availability of credit on the furnace oil used in the manufacture of electricity, which was wheeled out to the factory. Therefore, the argument of bona fide belief raised by the appellant is only an argument of convenience and not based on any conviction, whatsoever. Whether penalty could have been imposed under Section 11AC read with Rule 15 of the Cenvat Credit Rules, 2004 - Held that - In view of the repeated amendments in Cenvat Credit Rules, huge litigation in the country stood generated and in those circumstances, it was held that penalty was not leviable on the appellant/assessee particularly when in a large number of cases, there were conflicting views. Following the same, in the present case also, since the issue related to a question of interpretation of law, in my considered view, imposition of penalty is not warranted. Appellant had taken the suo motu credit allegedly on the ground that the Commissioner (Appeals) had directed the department to issue a proper notice and extend an opportunity of personal hearing before recovering the ineligible Cenvat credit taken. It is based on these orders, the appellant had taken the suo motu credit as can be seen from the records. Assuming for a minute that instead of the appellant taking suo motu credit, if the department had granted refund, what would be the time limit available to the department for recovery of credit. When a refund is granted in terms of the appellate authority s order, which is binding on the lower authorities and which is as a result of conscious act to comply with the decision of the higher authorities, it cannot be considered as an erroneous refund and, therefore, limitation under Section 11B of the Central Excise Act, 1944 would not be applicable to such refunds and the general law of limitation would apply. - demand is confirmed and the penalties are set aside. - Decided partly in favour of assessee.

Issues Involved:
1. Entitlement to input credit for duty paid on fuels used in electricity generation wheeled outside the factory.
2. Applicability of the extended period of limitation for the demand of Cenvat credit.
3. Imposition of penalties under Section 11AC of the Central Excise Act read with Rule 15 of the Cenvat Credit Rules, 2004.
4. Determination of the period of limitation for computing the demand.

Issue-wise Detailed Analysis:

1. Entitlement to Input Credit:
The appellant, M/s. Bhushan Steel & Strips Ltd., was denied input credit on the duty paid on fuels used in the generation of electricity that was wheeled outside the factory premises. The Tribunal referenced the Hon'ble Supreme Court decisions in Maruti Suzuki Ltd. v. CCE, Delhi-III (2009) and CCE v. Gujarat Narmada Fertilizers Co. Ltd. (2009), which settled that manufacturers are not entitled to input credit for fuels used in electricity generation that is not used for manufacturing excisable goods within the factory. Consequently, the Tribunal upheld the denial of input credit on merits.

2. Applicability of Extended Period of Limitation:
The demand covered the period from October 2003 to September 2005, with the show cause notice issued on 22-2-2006. The Vice-President opined that the extended period was not applicable due to the existence of favorable decisions for manufacturers during the disputed period, indicating no suppression of facts with intent to evade duty. However, the Member (Technical) disagreed, citing the appellant's non-cooperative conduct and failure to provide necessary information, which constituted suppression of facts. The Third Member concurred with the Member (Technical), concluding that the extended period of limitation was applicable due to the appellant's defiant and non-cooperative behavior.

3. Imposition of Penalties:
The Vice-President held that penalties were not sustainable, referencing the Supreme Court's observation in Maruti Suzuki Ltd., which indicated that penalties should not be imposed due to the conflicting views and repeated amendments in the Cenvat Credit Rules. The Member (Technical), however, argued for the imposition of penalties under Section 11AC, given the appellant's willful intention to avail ineligible credit. The Third Member supported the Vice-President's view, emphasizing that the issue related to the interpretation of law and thus, penalties were not warranted.

4. Determination of the Period of Limitation:
The Vice-President considered the initial taking of credit for computing the period of limitation, while the Member (Technical) suggested counting from 22-8-2005 when the appellant took suo motu re-credit. The Third Member clarified that the relevant date for the limitation period could be either the date of initial credit or the date of re-credit, but emphasized that the demand was within the normal period of limitation regardless of the start date due to the appellant's delayed submission of information.

Majority Order:
The majority view confirmed the demand for Cenvat credit while setting aside the penalties. The Tribunal concluded that the extended period of limitation was applicable, but no penalties were imposed due to the interpretative nature of the issue. The relevant date for the limitation period was deemed academic, as the demand was within the limitation period under any computation method.

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