2015 (9) TMI 1496 - AT - Central Excise

Denial of CENVAT credit - job-work - the appellant avails the benefit of Notification dated 1.3.2006 for supply of goods without payment of duty to the job worker, it had exercised the option for payment of an amount equal to 5% of the value of exempted goods cleared to the job work under Rule 6(3)(I) of the Cenvat Credit Rules 2004 - According to the Department, since the inputs supplied by the principal manufacturer are exclusively meant for manufacturing of the goods, the appellant is liable to pay the cenvat credit taken on those inputs in terms of explanation-II appended to Rule 6 of the Cenvat Credit Rules, 2004 - time bar. Held that - It is an admitted fact on record that the appellant had paid the amount equal to 5% of value of exempted goods cleared by it on job work basis to the principal manufacturer, in terms of Notification No. 6/2006-CE dated 1.3.2006. Since such option has been exercised by the appellant suo-moto and due intimation regarding such payment has been filed before the Central Excise Department, in my opinion, the extended period of limitation cannot be invoked for confirmation of the demand, in terms of the proviso to section 11A of the Central Excise Act, 1944. Further, the issue regarding applicability of the explanation appended to sub-rule (3) of Rule 6 ibid was debatable, for which the officers of Central Excise Audit Wing have referred the matter to the Preventive Wing of the same Department for conducting necessary investigation. The said fact proves beyond any shadow of doubt that there is no element of mens-rea/suppression of facts with intent to avail fraudulent credit by the appellant. Therefore, I am of the considered view that the SCN issued on 6.9.2012, seeking confirmation of demand for the period from November 2010 to March 2011, is clearly barred by limitation of time. Accordingly, the impugned order is set aside and the appeal is allowed in favor of the appellant on the ground of limitation alone - However, it is apparent from the face of the record that the appellant is not disputing the payment of ₹ 19,49,774/- reversed in its cenvat account, in terms of Rule 6(3)(i) ibid. Thus, the benefit of the extended period of limitation shall not be available on reversal of such amount. The appellant has filed another appeal, which has been listed as appeal no. E/58540/2013. The issue involves refund of ₹ 10,09,175/-, which was deposited at the time of audit. The appellant submits that the proceedings initiated pursuant to the audit report has attained finality vide order dated 12.02.2014, and thus, the said amount is eligible for refund. I am of the view that the appellant is eligible for refund of ₹ 10,09,175/-. However, sanction of the said refund amount is subject to verification of the unjust enrichment aspect by the original authority. Appeal allowed - decided in favor of appellant-assessee.

Summary

Issues:
1. Barred by limitation of time - Show Cause proceedings initiated by the Central Excise Department.
2. Interpretation of Rule 6 of the Cenvat Credit Rules, 2004.
3. Applicability of explanation-II to Rule 6 in the case.
4. Liability to reverse cenvat credit due to exclusive use of input for exempted goods.
5. Eligibility for refund of deposited amount post-audit.

Analysis:

Issue 1: Barred by limitation of time - Show Cause proceedings
The appellant argued that the Show Cause proceedings initiated by the Central Excise Department were time-barred, citing the period of dispute from November 2010 to March 2011 and the issuance of the Show Cause Notice (SCN) on 6.9.2012. The appellant contended that since the issue involved interpretation of Rule 6 of the Cenvat Credit Rules, 2004, allegations of fraud or misstatement were not applicable. The appellant further highlighted that the Department's own audit wing had expressed doubts about the matter, indicating a lack of clarity regarding the statutory provisions, which, according to the appellant, precluded the invocation of the extended period of limitation.

Issue 2: Interpretation of Rule 6 of the Cenvat Credit Rules, 2004
The appellant's counsel argued that maintaining separate accounts for inputs used in the manufacture of both dutiable and exempted goods was challenging due to the nature of the manufacturing process. The appellant opted to pay the amount as per Rule 6(3)(I) of the Cenvat Credit Rules, 2004, given the difficulty in segregating inputs. The counsel contested the Lower Authorities' findings on the application of explanation-II to the case, stating that accounting principles did not necessitate separate records for apportioning inputs for different types of goods.

Issue 3: Applicability of explanation-II to Rule 6
The Department's representative reiterated that since the input H.R. Coils were exclusively used for manufacturing exempted goods under Notification No. 6/2006-CE, the appellant was obligated to reverse the cenvat credit. This stance was based on the contention that inputs supplied exclusively for exempted goods necessitated credit reversal under Rule 6.

Issue 4: Liability to reverse cenvat credit
The Tribunal acknowledged that the appellant had paid the required amount for exempted goods cleared on a job work basis to the principal manufacturer as per Notification No. 6/2006-CE. Since the appellant had intimated the Department about this payment and the matter was referred for further investigation due to doubts, the Tribunal concluded that the extended period of limitation could not be invoked, thereby setting aside the demand confirmation.

Issue 5: Eligibility for refund of deposited amount post-audit
The Tribunal allowed the appellant's claim for a refund of the amount deposited during the audit proceedings, subject to verification of unjust enrichment by the original authority. The refund eligibility was recognized, emphasizing the finality of the audit-related proceedings and the subsequent refund claim.

In conclusion, the Tribunal ruled in favor of the appellant on the grounds of limitation regarding the Show Cause proceedings, while also addressing the interpretation of Rule 6, applicability of explanation-II, liability to reverse cenvat credit, and eligibility for a refund of the deposited amount post-audit.