2015 (12) TMI 234 - HC - Central Excise

Recredit of CENVAT Credit previously reversed - Disallowance of credit on LDO/furnace oil - SCN issued for recredit without proper authoriation - Held that - appellant had claimed Cenvat credit and had filed the proper invoice bills. The authority was satisfied and credit was allowed for which there is no dispute. However, for whatever reasons, the appellant reversed these Cenvat credit entries and debited the said amount in its books but subsequently, realised that they were eligible for Cenvat credit, inasmuch as furnace oil was an input as defined under the Rules, based on which, the assessee issued a letter dated 25th April, 2005 indicating its intention to again make the reversal of its Cenvat credit entries and also enclosing the original invoice bills. - show cause notice was wrongly issued on a wrong premise that no permission was taken or that original documents were not filed. In fact, we find that the appellant had not only intimated the department about its intention but also had filed the necessary documents. The letter indicated the details of the description of the goods, the invoice bills and the credit to be taken. This was in consonance with the provisions of Rule 9. If the authority had any objection they should have immediately asked the appellant for further clarifications, which in the instant case was not done. - Consequently, the reversal of entry made by the appellant was justified in the given facts and circumstances of the case. - Decided in favour of assessee.

Summary

Issues:
Claim of Cenvat credit on furnace oil, legality of recrediting entries, applicability of Rule 14 and Rule 15, demand of Cenvat credit and interest, entitlement to recredit amount previously reversed.

Analysis:
The case involved a manufacturer of Brake Shoe Castings who availed Cenvat credit on furnace oil but faced disallowance during a departmental audit. The appellant reversed the credit entries but later realized their eligibility for the credit based on furnace oil being an input as per the Rules. The appellant informed the department, enclosed necessary documents, and intended to recredit the amount. The department issued a show cause notice alleging unauthorized recrediting without proper permission or documents under Rule 9. However, the Court found that the appellant had initially followed the procedure correctly by filing proper invoice bills, and the subsequent reversal and recrediting were justified as per the Rules.

The Court noted that the show cause notice was based on incorrect premises as the appellant had intimated the department and submitted required documents. The contention that a refund application under Section 11B was necessary was dismissed as it was not a refund case but an account entry reversal. Citing a Madras High Court judgment, the Court emphasized that Section 11B did not apply in such scenarios where there was no outflow of funds requiring a refund claim. Therefore, the appellant's actions of reversing and recrediting the entry were within the ambit of Rule 9, and Section 11B was deemed inapplicable.

Consequently, the Court held that the appellant's recrediting of the amount was lawful, and the show cause notice, demand, and interest imposed by the department were deemed illegal and set aside. The appellant was entitled to a refund, and the department was directed to refund the amount within three months. The judgment clarified the procedural correctness of the appellant's actions and the invalidity of the department's demand based on incorrect assumptions regarding the recrediting of Cenvat credit entries.