2016 (4) TMI 1191 - AT - Central Excise

Cenvat credit - Capital goods - Penalty - Time limitation - Held that - On perusal of the show-cause notice, it is seen that the notice relies upon the ER-1 return and the letter issued by appellant informing the details of credit. There is no evidence for any positive act of suppression or wilful misstatement committed on the part of the appellant. The appellants have disclosed details of the credit availed as required under law. There is no requirement/provision in the ER-1 returns to submit the details of each item on which credit is availed - Except the baseless allegation that appellant did not furnish details of credit in ER-1 returns there is no iota of evidence to prove that appellant is guilty of suppression of facts or wilful misstatement. In the present case the show cause notice itself is based upon the ER-1 returns and details furnished by appellant and not on any private records or other source - Once the assessee files returns, it is for the proper officer to subject the returns to scrutiny and call for clarifications in case of any doubt - On bare perusal of definition of inputs, it can be seen that input include goods which are used in or in relation to the manufacture of final products whether directly or indirectly and whether contained in the final product or not. On such score, the contention of the revenue is totally untenable. I do not agree with the contention of Revenue that credit is not admissible as the prefabricated parts are embedded to earth, I am unable to accept the argument of the learned counsel that clean room is an equipment. It may be correct that such a room is indispensible to the process of manufacture, as the appellants are engaged in manufacturing bulk drugs - But no way can a clean room be considered a capital good or component, accessory, or part of capital goods - However as the issue is an interpretational one and as the appellant had revered the credit for the normal period on pointing out by department, even before issuance of show cause notice I hold that no penalty can be imposed for the irregular credit availed on prefabricated building parts. Appeal partly allowed.

Issues Involved:
1. Irregular availment of Cenvat credit on MS items and prefabricated modular walls and panels.
2. Applicability of the extended period of limitation for raising the demand.
3. Eligibility of Cenvat credit on MS items and prefabricated modular walls and panels.
4. Imposition of penalty for irregular credit availed.

Detailed Analysis:

1. Irregular Availment of Cenvat Credit on MS Items and Prefabricated Modular Walls and Panels:
The appellants, manufacturers of bulk drugs, availed Cenvat credit on various items including MS channels, TMT bars, MS joists, MS Angles, HRC plates, steel tubes & pipes, and prefabricated modular walls & panels, classifying them as capital goods. The department contended that these items did not qualify as capital goods and issued a show-cause notice for irregular credit of ?41,39,628/-. The original authority confirmed the demand, which was partly upheld by the Commissioner (Appeals), allowing credit only on steel tubes/pipes.

2. Applicability of the Extended Period of Limitation:
The period under dispute was April 2006 to June 2010, with the show-cause notice issued on 25-4-2011. The appellant argued that the extended period was not applicable as there was no suppression of facts or willful misstatement. The Tribunal noted that the show-cause notice was based on ER-1 returns and details furnished by the appellant, with no evidence of suppression or willful misstatement. The Tribunal cited various judgments, including the Supreme Court's ruling in Continental Foundation Jt. v. Commr. of C.Ex., Chandigarh-1, which emphasized that mere omission to give correct information does not amount to suppression unless it was deliberate to evade duty. Consequently, the extended period was deemed inapplicable.

3. Eligibility of Cenvat Credit on MS Items and Prefabricated Modular Walls and Panels:
The Tribunal examined whether the MS items and prefabricated walls & panels qualified for Cenvat credit either as capital goods or inputs. It was noted that the MS items were used for support structures essential for the manufacturing process, such as carrying pipelines and repairing reactors. The Tribunal referenced the Larger Bench decision in Vandana Global Ltd. and other judgments to conclude that MS items used for fabricating structures supporting capital goods were eligible for credit. However, prefabricated walls and panels used for creating a clean room were not considered capital goods or components thereof, and thus, credit on these items was disallowed.

4. Imposition of Penalty for Irregular Credit Availed:
Given that the issue was interpretational and the appellant had reversed the credit for the normal period before the issuance of the show-cause notice, the Tribunal held that no penalty was warranted. The Tribunal emphasized that the appellants had acted in good faith and disclosed the credit availed in their returns, negating any intent to evade duty.

Conclusion:
The Tribunal modified the impugned order, setting aside the demand raised under the extended period and the demand concerning MS items for the normal period. The penalties imposed were also set aside. The demand for credit availed on prefabricated building parts, walls, and panels during the normal period was sustained. The appeal was partly allowed, providing consequential reliefs to the appellant.

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