2015 (8) TMI 145 - AT - Central Excise

Extended period of limitation - Denial of CENVAT Credit - Manufacture of final product - Receipt of the disputed goods, their duty paid nature and utilization within the factory premises have not been disputed by the authorities below - Held that - upon verification of the detailed accounts maintained by the appellant, the Chartered Engineer has certified the quantum of usage of the disputed goods for the said intended purpose. The documents available in the case record prove beyond any shadow of doubt that the fact regarding taking of cenvat credit by the appellant on the disputed goods were known to the Department beforehand. Such fact is evident from the SCN, wherein the duty demand has been computed based on the records maintained by the appellant. In view of the fact that the activities of the appellant regarding taking of cenvat credit on the disputed goods and use of the same for manufacture of the capital goods within the factory was known to the department way back in 2002, the show cause notice ought to have been issued within one year from the relevant date (i.e. taking of credit and furnishing of information by way of filing the ER-I return). Since the show cause notice has been issued in 2008, covering the period from June, 2002 to January, 2006, and no specific findings have been recorded regarding the involvement of the appellant in any fraudulent activities concerning fraud, collusion, miss-appropriation etc. with intent to evade payment of duty, the proviso to section 11A, in my opinion, cannot be invoked, justifying issuance of show cause notice, beyond the limitation period of one year. Further, the issue regarding taking of cenvat credit on the disputed goods is contentious one, because there are divergent views by different Benches of the Tribunal. According to my view, appellant entertaining a bonafide belief regarding eligibility of disputed goods for the purpose of taking cenvat credit, in view of conflicting decisions, are genuine and justified - proceedings initiated by the Department for recovery of the cenvat amount is barred by limitation of time and, accordingly, the impugned order is set aside - Decided in favour of assessee.

Summary

Issues:
1. Denial of cenvat credit on structural steel items used in the manufacture of plant and machinery.
2. Barred by limitation - issuance of show cause notice beyond one year.

Analysis:

Issue 1: Denial of cenvat credit on structural steel items
The appellant, engaged in sugar and molasses manufacturing, availed cenvat credit on structural steel items for plant and machinery. The Central Excise Department denied the credit, stating these items were used in fabricating supporting structures, not as capital goods. The appellant argued the disputed goods were inputs under Rule 2(k) of Cenvat Credit Rules, as they were used in manufacturing capital goods further used in their factory. The appellant cited relevant case laws supporting their claim. The Advocate also highlighted the absence of dispute on the nature and receipt of the goods, questioning the denial of credit. The Tribunal noted the utilization of disputed goods for manufacturing capital goods, certified by a Chartered Engineer. The show cause notice was issued beyond the limitation period, and no findings of fraudulent activities were established against the appellant. The Tribunal, considering conflicting views and the appellant's genuine belief in availing credit, ruled in favor of the appellant, setting aside the impugned order.

Issue 2: Barred by limitation - issuance of show cause notice beyond one year
The Department issued a show cause notice beyond one year from the relevant date, seeking disallowance of cenvat credit. The appellant argued the notice was time-barred due to lack of findings on fraudulent activities and ambiguity in interpreting the law. The Tribunal found that the Department was aware of the credit taken by the appellant since 2002, making the notice issued in 2008 time-barred. Citing previous decisions and divergent views, the Tribunal held that the proceedings for recovery of cenvat amount were barred by limitation, setting aside the impugned order in favor of the appellant.