2016 (12) TMI 850 - HC - Central Excise

Recovery of CENVAT credit - Rule 12 of the CC Rules read with Section 11A of the Central Excise Act, 1944 - to meet certain urgent requirements, the petitioners indulged in what is called as stock transfer. In such cases, inputs which are a stock with the other units were transferred on reversal of appropriate excise duty under the cover of an invoice - whether demand justified? Held that - the finding of fact that there is violation of Rule 7(4) read with Rule 13(2) of the CC Rules and that would attract penalty and interest is a finding rendered without adverting to the important contention raised before us, namely, whether the provision in question, as amended, is clarificatory and, therefore, would apply irrespective of the date of clearance or availment of the cenvat credit or will it have prospective operation, namely, from the date of its introduction. That ought to be considered - without this order being treated as a precedent for future cases, the impugned demand can be and is accordingly quashed and set aside. However, the Show Cause Notice is kept alive for adjudication. Petition allowed - decided in favor of petitioner.

Summary

Issues:
Challenge to excise duty recovery on cenvat credit availed during stock transfer.

Analysis:
The writ petition under Article 226 of the Constitution of India sought relief to quash excise duty recovery orders. The petitioners were engaged in manufacturing insulated wares and availed cenvat credit on inputs purchased for manufacturing final products. They faced a demand notice for recovery of cenvat credit amounting to a specific sum availed during a particular period. The petitioners argued that the amended provision of Rule 7 of the Cenvat Credit Rules, which changed "Purchased" to "Procured," was not considered in the original order. The issue was whether this amendment applied retrospectively or prospectively.

The respondents contended that the limitation aspect was consistent with statutory provisions, but the amended provision was not discussed in the order. The Court noted that the finding of violation of rules and imposition of penalty lacked consideration of the amended provision's applicability. The Court emphasized the need to determine if the amendment was clarificatory or substantive and whether it applied retrospectively or prospectively from its introduction date. The Court found the lack of discussion on this critical aspect in the original order.

Consequently, the Court quashed the impugned demand but kept the Show Cause Notice alive for adjudication. The petitioners were directed to appear before the Adjudicating Authority for a fresh order. The Court clarified that the issue of the provision's prospective or clarificatory nature must be addressed and decided by the authority. The petitioners were not allowed to raise grounds on limitation for appellate remedy, but they could challenge the Show Cause Notice issuance based on limitation. The writ petition succeeded, and no costs were awarded.