2013 (10) TMI 1298 - AT - Central Excise

Simultaneous availment of the benefit of Notification No. 29/2004-C.E. and Notification No. 30/2004-C.E., both dated 9-7-2004 - Under C.B.E. & C. Circular No. 795/28/2004-CX, dated 28-7-2004, it was clarified that simultaneous availment of Notification No. 29/2004-C.E. and Notification No. 30/2004-C.E. was permissible subject to the condition that a manufacturer should maintain separate books of accounts for goods availing the benefit of these notifications - However, appellants were not maintaining separate accounts for the Cenvat credit taken for dyes and chemicals used in the manufacture of dutiable and exempted goods - credit availed on the input used in manufacture of such exempted goods was reversed subsequently - such reversal of credit is not equivalent to the credit availed - Invocation of extended period of limitation. Held that - Total credit reversed by the first appellant during the period December 2004 to November 2005 was more than the pro rata credit required to be reversed and calculated by the Revenue. There was, therefore, no reason to reverse any credit or demand of duty for the period December 2004 to November 2005. It was, therefore, essential to provide the basis of short Cenvat reversal calculated by the Revenue. It is further pointed out by the advocate of the appellants that as per submissions dated 20-8-2013 filed by the Department now a credit of ₹ 55,94,675/-, ₹ 18,89,252/- and ₹ 19,77,942/- has been shown to be the balance credit required to be reversed by Appellant Nos. 1, 2 & 3 respectively. - The differences in amount calculations only indicate that the methodology adopted by the Revenue in calculating the reversal of Cenvat credit is not authentic. In the absence of any convincing data to the effect that reversal of Cenvat credit done by the appellants is not proper, it has to be held that reversal of Cenvat credit on pro rata basis was correctly done by Appellant Nos. 1, 2 & 3. So far as appellant No. 4 is concerned, already a credit of ₹ 8,33,578/- has been reversed against an amount of ₹ 6,91,464/- required to be reversed on pro rata basis. The quantum of reversal of Cenvat credit was never questioned by the Revenue. Once appellants declared the quantum of Cenvat credit reversed on the query of field formations, it cannot be held that there was any suppression on the part of the appellants with an intention to evade duty attracting extended period under proviso to Section 11A of the Central Excise Act, 1944. Accordingly, extended period of demand was not invokable in the present proceedings and show cause notices have also to be held as time-barred. - Decided in favour of assessee.

Issues Involved:
1. Simultaneous availment of Notification No. 29/2004-C.E. and Notification No. 30/2004-C.E.
2. Maintenance of separate accounts for Cenvat credit.
3. Reversal of Cenvat credit on inputs used for exempted goods.
4. Invocation of extended period for demand.
5. Adherence to principles of natural justice.

Issue-wise Detailed Analysis:

1. Simultaneous Availment of Notifications:
The appellants were availing benefits under both Notification No. 29/2004-C.E. and Notification No. 30/2004-C.E. Notification No. 30/2004-C.E. provided full exemption on the condition that no Cenvat credit was taken, while Notification No. 29/2004-C.E. allowed a concessional rate with permissible Cenvat credit. As clarified by C.B.E. & C. Circular No. 795/28/2004-CX, simultaneous availment was permissible if separate books of accounts were maintained. However, the appellants did not maintain separate accounts for dyes and chemicals used in both dutiable and exempted goods, leading to scrutiny and allegations by the Revenue.

2. Maintenance of Separate Accounts:
The appellants failed to maintain separate accounts for the Cenvat credit taken on inputs used in the manufacture of both dutiable and exempted goods. This non-compliance was observed during the scrutiny of ER-1 returns, leading to the issuance of show cause notices. The appellants reversed Cenvat credit on a pro rata basis and recorded it as duty payment in ER-1 returns, which the Revenue found insufficient.

3. Reversal of Cenvat Credit:
The primary contention was whether the appellants properly reversed the Cenvat credit on inputs used for exempted goods. The Commissioner initially disallowed the exemption under Notification No. 30/2004-C.E. due to improper reversal timing and quantum. The Tribunal remanded the case for fresh adjudication, emphasizing the need for verification of credit reversal in line with Gujarat High Court judgments. The adjudicating authority, upon remand, again confirmed the demands, citing improper pro rata reversal based on jurisdictional Assistant Commissioner's reports, which were not shared with the appellants.

4. Invocation of Extended Period for Demand:
The show cause notices invoked an extended period, alleging suppression of facts. The appellants argued that the reversal details were disclosed in ER-1 returns, and the extended period was unjustified. The Tribunal observed that the facts were known to the Department through ER-1 returns and held that there was no suppression with intent to evade duty, rendering the extended period inapplicable.

5. Adherence to Principles of Natural Justice:
The Tribunal noted violations of natural justice principles, as the appellants were not provided with the Assistant Commissioner's reports, hindering their defense. The Tribunal directed the adjudicating authority to provide these reports and allow the appellants to respond. Despite this, the adjudicating authority did not disclose the basis for the alleged short reversal of Cenvat credit, leading to further remands.

Final Judgment:
The Tribunal concluded that the reversal of Cenvat credit on a pro rata basis was correctly done by the appellants. The demands were based on inconsistent methodologies, and the quantum of reversal was not convincingly disputed by the Revenue. Additionally, the Tribunal held that the extended period was not invokable due to the transparency in ER-1 returns. Consequently, the appeals were allowed on both merits and time-bar grounds.

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