2019 (8) TMI 1834 - AT - Central Excise

Denial of CENVAT Credit - Furnace Oil used in the process undertaken for obtaining fuel oil - the process of mixing and blending is misdeclared as manufacture of fuel oil - Rule 14 of CENVAT Credit Rules 2004 read with section 11A of Central Excise Act, 1944, alongwith applicable interest and equivalent penalty - suppression of facts or not - invocation of extended period of limitation - HELD THAT - The assessee had duly informed the department about manufacture of the goods, namely Fuel Oil and that the appellant shall avail cenvat credit against such inputs to be utilised for manufacture of Fuel Oil. Therefore,the fact regarding availment of duty credit on furnace oil was always in the knowledge of the department. This clearly shows that there was no mala fide intention on the part of the appellant to misuse the benefit of Cenvat Credit as wrongly observed by the Ld. Commissioner. The assessee has duly shown the availment of credit in ER-1 returns which fact is not in dispute. The Tribunal in COMMISSIONER OF CENTRAL EXCISE, KOLKATA VI VERSUS M/S ITC LTD. 2013 (3) TMI 44 - CESTAT KOLKATA has observed that if the assessee has disclosed availment of CENVAT Credit in ER-1 returns, suppression of facts cannot be alleged and demand beyond normal period is not sustainable. Thus, the impugned SCN dated 23.02.2012 issued by invoking extended period of limitation for duty demand for the period February 2007 to March 2008 is hopelessly barred by limitation. On merits also, there are force in the submission of the appellant that even if it is assumed that the process undertaken by the appellant did not amount to manufacture, the question of levy of duty on the final product did not arise and therefore, no duty demand is sustainable otherwise also. The Ld. Commissioner in his order, did not follow the Gujarat High Court s decision in COMMISSIONER OF CENTRAL EX. CUS., SURAT-III VERSUS CREATIVE ENTERPRISES 2008 (7) TMI 311 - GUJARAT HIGH COURT for the only reason that in similar circumstances, the Department has filed an appeal before the Hon ble Bombay High Court against the Tribunal s decision in NRB BEARINGS LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE, MUMBAI-II 2006 (10) TMI 74 - CESTAT, MUMBAI . The stand taken by the Ld. Commissioner, cannot be agreed upon for the reason that the appeal filed by Department has merely been admitted for hearing and that the decision of the Tribunal as reported in NRB BEARINGS LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE, MUMBAI-II 2006 (10) TMI 74 - CESTAT, MUMBAI , has not been stayed and will accordingly hold good. The Ld. Commissioner committed a fundamental error in not following the Hon ble Gujarat High Court s decision which has been duly upheld by the Apex Court. The appellant is legally entitled to avail Cenvat Credit - the impugned order cannot sustain both on merits as well as on limitation - Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Entitlement to Cenvat Credit on furnace oil.
2. Allegation of mis-declaration and suppression of facts.
3. Applicability of extended period of limitation.
4. Imposition of penalty.

Detailed Analysis:

1. Entitlement to Cenvat Credit on Furnace Oil:
The core issue was whether the appellant was entitled to avail Cenvat Credit on furnace oil used in the manufacture of fuel oil. The appellant argued that the process of blending and mixing Heavy Creosote Oil with furnace oil resulted in a new commodity, 'Fuel oil,' which amounts to 'manufacture.' The fuel oil had distinct characteristics and uses, such as high calorific value and low sulphur content, differentiating it from the input (furnace oil). The department contended that both products were the same and thus, the credit was inadmissible. However, the Tribunal found merit in the appellant's submission, noting that the process did result in a new product, thereby entitling them to Cenvat Credit.

2. Allegation of Mis-declaration and Suppression of Facts:
The department alleged that the appellant mis-declared the process as 'manufacture' to avail inadmissible Cenvat credit. The appellant countered that they had informed the department about the manufacture of 'Fuel Oil' and the intention to avail credit via a letter dated 01.02.2006. This was also disclosed in their ER-1 returns. The Tribunal observed that since the department was aware of the appellant's activities and credit availment, there was no mala fide intention or suppression of facts. The Tribunal cited the case of CCE v. ITC Ltd., where disclosure in ER-1 returns negated the allegation of suppression.

3. Applicability of Extended Period of Limitation:
The Show Cause Notice (SCN) was issued by invoking the extended period of limitation for the period February 2007 to March 2008. The Tribunal found that the appellant had disclosed all relevant information to the department, which negated the basis for invoking the extended period. The Tribunal held that the SCN dated 23.02.2012 was barred by limitation, emphasizing that the department was always aware of the appellant's credit availment.

4. Imposition of Penalty:
The Tribunal also addressed the imposition of penalty under Rule 15(2) of the CENVAT Credit Rules read with Section 11AC of the Central Excise Act. Given that the appellant had disclosed the credit availment and there was no suppression of facts, the Tribunal found no grounds for imposing a penalty. The Tribunal referenced several judgments, including Commissioner v. Creative Enterprise, where it was held that if duty is levied on the final product, CENVAT Credit cannot be denied even if the process does not amount to manufacture.

Conclusion:
The Tribunal concluded that the appellant was legally entitled to avail Cenvat Credit on furnace oil. The impugned order was set aside on both merits and limitation grounds. The appeal was allowed with consequential relief as per law.