2016 (12) TMI 159 - AT - Central Excise

Reversal of credit of ADD - Nickel Cathodes and Nickel HP Squares - clearance of goods to sister concern as such - Rule 3(5) of Cenvat Credit Rules, 2004 - Held that - It is seen from a plain reading of the Rule 3(5) that when the inputs on which Cenvat Credit has been taken are removed as such from the factory the manufacturer is required to pay an amount equal to the credit availed on such inputs - The fact that the party had reversed the credit on basic excise duty but did not reverse the credit on account of special additional duty has not been satisfactorily explained by the Director in his replies during the statement particularly since the law is quite unambiguous and when they were reversing the credit of special additional duty for the removal to other customers. The entire situation also needs to be seen in the context that the appellants are registered with the department for a long time and are well aware of the laws and procedures. Very clearly, there is an element of suppression and intention to evade duty. Revenue neutrality - Held that - if the situation was revenue neutral, as argued by appellants, there was no need to even to reverse the input credit of basic excise duty - the plea of revenue neutrality in the instant case is not acceptable. The order passed by Commissioner (Appeals) is legal and proper and does not call for any interference - appeal dismissed - decided against appellant-assessee.

Summary

Issues:
1. Interpretation of Rule 3(5) of Cenvat Credit Rules, 2004 regarding payment of credit on removal of inputs.
2. Allegation of evasion of duty by not paying the 4% Additional Duty of Customs on inputs cleared to another unit.
3. Claim of revenue neutrality and intention to evade duty by the appellant.
4. Application of case laws and judgments to support arguments on revenue neutrality.

Interpretation of Rule 3(5) of Cenvat Credit Rules, 2004:
The case involved a dispute regarding the interpretation of Rule 3(5) of the Cenvat Credit Rules, 2004, which mandates the payment of credit on the removal of inputs from the factory. The Commissioner (Appeals) correctly interpreted the rule, emphasizing that any removal, whether for sale or transfer of stock, requires the reversal of the availed credit on such inputs. The failure to reverse the credit on special additional duty despite reversing basic excise duty indicated a lack of compliance with the law, suggesting an element of suppression and intent to evade duty.

Allegation of Evasion of Duty:
The appellant was accused of evading duty by not paying the 4% Additional Duty of Customs on inputs cleared to another unit. The appellant's Managing Director admitted to clearing inputs without paying the duty, citing them as transfers rather than sales. The Additional Commissioner confirmed the demand for duty along with interest and imposed a penalty. The Commissioner (Appeals) upheld this decision, highlighting the appellant's failure to comply with the law and contravene the provisions of Rule 3(5).

Claim of Revenue Neutrality and Intention to Evade Duty:
The appellant argued for revenue neutrality, claiming that the stock transfer between units was revenue-neutral and not intended to evade duty. However, the Commissioner (Appeals) rejected this argument, stating that the retention of credit without the corresponding goods contradicted the Cenvat scheme. The failure to reverse the credit on special additional duty, despite reversing basic excise duty, indicated an intention to retain the credit unlawfully. The plea of revenue neutrality was dismissed, emphasizing the need for compliance with duty payment regulations.

Application of Case Laws and Judgments:
Both the appellant's advocate and the respondent relied on various case laws and judgments to support their arguments on revenue neutrality. The appellant cited cases to argue against the invocation of penalties and extended periods due to revenue neutrality. In contrast, the respondent presented cases to emphasize the importance of complying with duty payment regulations and reversing credits as required by law. The judgment referenced a Supreme Court case to dismiss the plea of revenue neutrality, reinforcing the necessity of adhering to duty payment obligations.

In conclusion, the Tribunal dismissed both appeals, upholding the order passed by the Commissioner (Appeals) as legal and proper. The judgment emphasized the importance of complying with duty payment regulations, reversing credits as mandated by law, and rejected the plea of revenue neutrality in the context of the case.