2018 (2) TMI 16 - HC - Central Excise

CENVAT credit - Whether, in the facts and circumstances of the case, the demand raised by the Respondents is sustainable since even if credit is denied to the Appellants, it is simultaneously available to other factories who according to the Respondents have received the inputs under consideration? - extended period of limitation - proviso to Section 11A(1) of the Central Excise Act, 1944 read with Rule 12 of the erstwhile Cenvat Credit Rules, 2002. Held that - Once the stock of raw materials has not gone out of the units of the Sanvijay Group or the Group as a whole, then, what ought to be apparent to all of them is that there was an irregularity and at best discrepancy, but not a wrongful availment of the cenvat credit. It is, therefore, clear that the Tribunal noted the arguments of the assessee s Advocate, and particularly that the shortage is not due to the clandestine removal of the goods, but it is only due to the accounting method and secondly, that the difference in the stock is less than 5% which is permissible by the BIS standards. Apart therefrom, the confirmation of demand of cenvat credit was on the basis of non receipt of inputs in the respective units. The Tribunal holds that there is no dispute that the entire shortage found in the physical stock taken by the officers is less than 5%. It is in these circumstances and when in the assessee s own case it was held that shortage in the range of / 5% should be ignored, then, the Tribunal followed its own order in the case of this very assessee and dropped the demand in respect of shortage found in the physical stock and consequent penalty commensurate to the duty on such shortage. Thus, the Group, the units and their activities were known to the Revenue. It is not as if the shortage was noticed for the first time. The shortage was not to such an extent as would make a demand for duty interest and penalty sustainable. It was in the permissible range. Wrongful availment of CENVAT credit - Held that - the goods have been consumed within the Group units and there is no cenvat credit which was wrongfully availed, but was adjusted as stated above. Thus, this was a case where the adjudicating authority so also the Commissioner (Appeals) and the Tribunal could not establish any loss of revenue. We are also not been shown any finding of such nature. Else, the penalty would not have been dropped. Once the explanation in regard to shortage of raw materials was found to be plausible and is accepted and the Appeal allowed in part, then, we do not see why for an alleged irregularity on penalty, the same view was not taken. It was imminently possible given the fact that no fraud has been established. Once the assessees derive no benefit by not reversing cenvat credit on the inputs, when sister concerns are also eligible to take that credit, then, in the absence of any cogent and reliable evidence particularly on the diversion of inputs, the principle or doctrine of revenue neutrality, which was applied in that case by the Tribunal, was rightly upheld. Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Sustainability of the demand raised by the Respondents.
2. Invocation of the extended period of limitation under proviso to Section 11A(1) of the Central Excise Act, 1944.

Issue-wise Detailed Analysis:

1. Sustainability of the Demand Raised by the Respondents:
The primary issue concerns whether the demand raised by the Respondents is sustainable given that even if credit is denied to the Appellants, it is simultaneously available to other factories within the Sanvijay Group. The appellants, engaged in the manufacture of rolled products of iron and steel, argued that the credit should be allowed to the factory where the goods were actually delivered, making the exercise revenue neutral. The appellants pointed out that errors in delivery due to similarity in names and addresses led to the wrong factory receiving the inputs, which were then locally transported to the correct recipient without correcting the transport documents. The Preventive Branch of the Central Excise Headquarters, Nagpur, during a visit, noticed a shortage of inputs and alleged that the appellants had taken wrong credit on inputs received and consumed in another factory. The Tribunal, however, noted that the shortage was less than 5%, permissible by BIS standards, and there was no evidence of clandestine removal of goods. The Tribunal concluded that the issue was an irregularity rather than an illegality, and the shortage did not justify the demand for duty, interest, and penalty.

2. Invocation of the Extended Period of Limitation:
The second issue is whether the Respondent correctly invoked the extended period of limitation under proviso to Section 11A(1) of the Central Excise Act, 1944. The appellants argued that there was no suppression with intent to evade payment of duty, as the goods were received and consumed within the Sanvijay Group, making the credit revenue neutral. The Tribunal, however, held that the credit was wrongfully availed by the unit whose name was mentioned in the invoices, and the inputs were received in a different unit. The Tribunal found no evidence of fraud or loss of revenue, and the shortage was within permissible limits. The Tribunal's decision was influenced by the principle of revenue neutrality, as the inputs were consumed within the group units, and the credit was adjusted accordingly.

Conclusion:
The High Court quashed and set aside the orders under appeal, finding that the Tribunal failed to consider the arguments and submissions properly. The court emphasized that the issue was an irregularity rather than an illegality, and the shortage was within permissible limits. The principle of revenue neutrality applied, as the inputs were consumed within the group units, and there was no evidence of fraud or loss of revenue. The appeals succeeded, and there was no order as to costs.