2017 (12) TMI 267 - AT - Central Excise

CENVAT credit - capital goods - Bagassee Bailing Machine - whether the bailing machine is eligible for availment of Cenvat credit under capital goods? - Scope of SCN - case of appellant is that SCN has not alleged the admissibility of the Cenvat credit in respect of bailing machine therefore Commissioner (Appeals) order traveled beyond the scope of SCN - Held that - It is observed that the said issue was not raised in the SCN therefore Ld. Commissioner(Appeals) traveled beyond the scope of the show cause notice for this reason itself order is not sustainable. Even on the issue of admissibility of Cenvat credit on bailing machine it is observed that it is incorrect to say that bailing machine was used exclusively for exempted goods. The fact is not under dispute that said machine is used for bailing of baggase which partly used in the factory of the appellant as fuel therefore bailing machine is not used for exclusively in the manufacture of exempted goods, accordingly, Cenvat credit is admissible. Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Admissibility of Cenvat credit on Bagassee Bailing Machine.
2. Interpretation of Section 11A(7) in the context of duty payment.
3. Scope of show cause notice in determining admissibility of Cenvat credit.
4. Eligibility for refund after payment of duty, interest, and penalty.

Analysis:

1. Admissibility of Cenvat credit on Bagassee Bailing Machine:
The appellant availed Cenvat credit on a bailing machine used for bailing baggase during manufacturing. The audit raised objections, leading to payment of duty, interest, and penalty. The appellant later sought a refund, but it was rejected on the grounds of the matter being closed due to the payment made. The Commissioner(Appeals) held that Cenvat credit on the bailing machine was not admissible as it was used for exempted goods. However, the appellate tribunal found that the machine was also used for baggase partly utilized as fuel in the factory, making it eligible for Cenvat credit. The judgments cited by the appellant's counsel supported this argument, leading to the tribunal allowing the appeal and directing the refund processing.

2. Interpretation of Section 11A(7) in the context of duty payment:
The tribunal clarified that Section 11A(7) should be understood concerning further litigations initiated through a show cause notice. It does not imply that all matters related to duty payment are closed once payment is made. This interpretation allowed the appellant to challenge the rejection of the refund claim despite having paid duty, interest, and penalty. The revenue did not contest this interpretation, leading to its finality and enabling the tribunal to review the admissibility of Cenvat credit on the bailing machine.

3. Scope of show cause notice in determining admissibility of Cenvat credit:
The tribunal emphasized that the scope of the show cause notice limits the issues that can be considered in the adjudication process. Since the show cause notice did not specifically address the admissibility of Cenvat credit on the bailing machine, the Commissioner(Appeals) exceeded the notice's scope by rejecting the refund claim on this ground. This oversight rendered the order unsustainable and paved the way for the tribunal to review the admissibility independently.

4. Eligibility for refund after payment of duty, interest, and penalty:
Despite the appellant having paid duty, interest, and penalty, the tribunal held that this did not preclude them from seeking a refund if the Cenvat credit on the bailing machine was found to be admissible. The tribunal's decision to allow the refund and direct the reprocessing of the claim highlighted that the payment made did not foreclose the possibility of seeking a refund in cases where the credit was wrongly denied. This approach upheld the appellant's right to challenge the denial of Cenvat credit and seek appropriate remedies through the refund process.