2018 (2) TMI 131 - AT - Central Excise

CENVAT credit - duty paying documents - Revenue was of the view that the invoices not having been issued by a registered dealer, are not the proper documents under Rule 9 of Cenvat Credit Rules - capital goods - Held that - there is no dispute that M/s Chemicals Sales was not registered with the Central Excise Department as first or second stage dealer during the impugned period. The law is clear under Rule 9 of Cenvat Credit Rules, 2004 that the invoice should be issued by a manufacturer, an importer or a first/second stage dealer. If the invoice was not issued by any of the above categories, the same cannot be considered as a valid document in eyes of law and the Cenvat credit taken on the basis of such a document is irregular and inadmissible - If the department starts accepting the invoices issued by a trader, who is not a registered dealer, it will create chaos in the Cenvat credit system and there will be flagrant misuse of the said scheme, which is a facility to present cascading effect of taxes. Time limitation - penalty - Held that - appellants while declaring availement of Cenvat credit in the ER-1 returns have misstated the facts because the invoices, on which they had availed Cenvat credit, were not issued by a manufacturer/importer/registered dealer thereby resulting in availment of irregular and fraudulent credit. As a result, they had mis-declared the availment of Cenvat credit - extended period and penalty rightly invoked. CENVAT credit - capital goods - Revenue is of the view that the same are the capital goods and hence the appellant no.1 should have taken Cenvat credit to the extent of 50% of the duty paid on such capital goods - scope of SCN - Held that - since the credit held inadmissible to them in the first year, was available to them in the succeeding years. I observe that the issue is not covered by the show cause notice. However, the appellants no.1 are at liberty to avail admissible credit and needs no approval - the order of Commissioner (Appeals), in so far as it relates to the irregular credit of ₹ 53,005/-, is set aside and the matter is remanded back to Commissioner (Appeals) to pass a fresh order after giving fair opportunity to the appellants to defend their case - Matter on remand. Appeal disposed off.

Summary

Issues Involved:
1. Availment of inadmissible Cenvat credit of ?1,53,023/- by M/s Hindustan Unilever Ltd on invoices issued by M/s Chemicals Sales, Rajpura.
2. Taking of 100% Cenvat credit of ?53,005/- on capital goods by M/s Hindustan Unilever Ltd in the first year itself.

Detailed Analysis:

Issue 1: Availment of Inadmissible Cenvat Credit of ?1,53,023/-

The core issue here is whether M/s Hindustan Unilever Ltd (appellant no.1) correctly availed Cenvat credit based on invoices issued by M/s Chemicals Sales, Rajpura (appellant no.2), who was not a registered dealer with the Central Excise Department during the relevant period. The law under Rule 9 of the Cenvat Credit Rules, 2004, mandates that invoices must be issued by a manufacturer, importer, or a first/second stage dealer for them to be considered valid documents for availing Cenvat credit. The appellant no.1 argued that the goods were directly sent to them by M/s Siel Chemical Complex and that the invoices from M/s Chemical Sales should be read together with those from M/s Siel Chemical Complex to validate the credit. However, this construction was found impermissible in law, and the credit taken on the basis of invoices from an unregistered dealer was deemed irregular and inadmissible. The adjudicating authority highlighted attempts by the appellants to mislead authorities, noting discrepancies in the invoices and the roles of the parties involved.

The appellants cited several case laws to argue that non-registration was a procedural lapse, but these were found inapplicable as they pertained to exemption notifications and not the Cenvat Credit Rules. The requirement for an invoice to be issued by a registered dealer was deemed a substantive condition, not a procedural one.

On the matter of limitation and penalty, the appellants contended that they had declared the Cenvat credit in their ER-1 returns, arguing no suppression of facts. However, it was found that they had mis-declared the availment of Cenvat credit, as the invoices were not issued by a valid entity, justifying the extended period for demand and the imposition of penalties.

Issue 2: Taking of 100% Cenvat Credit of ?53,005/- on Capital Goods

The second issue concerns M/s Hindustan Unilever Ltd taking 100% Cenvat credit on capital goods in the first year, contrary to the rule allowing only 50% credit in the first year. The appellants argued that there was no allegation that the items procured were classifiable as capital goods and that they had reversed the Cenvat credit on 04.03.2011, which might attract interest liability but not the demand itself. The Commissioner (Appeals) had given a partial finding, noting that the appellants were not contesting the issue and that the credit held inadmissible in the first year was available in succeeding years. However, this finding was found to lack proper elaboration and application of mind, necessitating a remand for fresh adjudication.

Conclusion:

1. The order of the Commissioner (Appeals) regarding the irregular Cenvat credit of ?1,53,023/- on inputs is upheld, confirming the demand along with interest and penalties on both appellants.
2. The order concerning the Cenvat credit of ?53,005/- on capital goods is set aside, and the matter is remanded back to the Commissioner (Appeals) for fresh adjudication.

The appeals are disposed of in these terms.