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2018 (3) TMI 922 - AT - Central ExciseCENVAT credit - capital goods - input services - case of the department in the show cause notice is that M/s Sparkon did not have independent existence and merely prepared invoices for the purpose of enabling the appellant to avail credit of the duty/service tax paid. Held that - it appears that M/s Sparkon Eengineering- proprietor PR Sajan was properly set up in the year 2005. They had separate registration under Central excise, has separate premises, had the own plant and machinery and had fabricated and cleared plant and machinery to SIL- EOU. The only fact that the proprietor Mr Sajan was also an employee of SIL, the Financial assistance and management assistance, particularly financial affairs do not lead to the inevitable conclusion that Sparkon was a dummy organisation - the ld Commissioner have rightly held that the dispute of credit on capital goods in question, the same were manufactured in the factory premises of the SIL - EOU or DTA, that there is no question of payment of any tax in view of N/N. 67/1995-CE - appellant SIL EOU is entitled to Cenvat credit attributable to inputs and input services. CENVAT credit on input services - Held that - Mr Sajan was under the whole time employment of the appellants, further he was found to be unaware regarding such invoices raised, reveals that the work was done under the relation of employer and employee and not services provided by a separate entity - credit rightly denied - demand of interest upheld. Penalties - Held that - it is evident that the appellant have made the payment for the invoices disputed for input service and then taken credit. That sparkon was duly registered with the service tax Department - As the appellant had paid the tax and then taken credit, in the interest of Justice, penalties set aside. Appeal allowed in part.
Issues Involved
1. Denial of Cenvat credit on capital goods and input services. 2. Allegation of M/s Sparkon being a dummy unit. 3. Invocation of extended period of limitation. 4. Imposition of penalties. Detailed Analysis 1. Denial of Cenvat Credit on Capital Goods and Input Services The core issue was whether Cenvat credit was rightly denied on capital goods and input services. The appellant-assessee, a 100% Export Oriented Unit (EOU), had availed Cenvat credit on inputs and input services used in the manufacture of final products. An intelligence report suggested that M/s Sparkon Engineering, allegedly a dummy unit, issued invoices to facilitate the appellant in availing Cenvat credit without providing actual services. The investigation revealed that M/s Sparkon had no machinery or infrastructure to provide the services as claimed. However, it was found that M/s Sparkon was properly set up with separate registration under Central Excise, had its own premises, plant, and machinery, and had fabricated and cleared machinery to the appellant. Therefore, the denial of Cenvat credit on capital goods was found unjustified, but the credit on input services was disallowed as the work was done under an employer-employee relationship rather than by a separate entity. 2. Allegation of M/s Sparkon Being a Dummy Unit The department alleged that M/s Sparkon was a dummy unit created to enable the appellant to avail Cenvat credit fraudulently. The investigation showed that M/s Sparkon had separate registrations, independent purchases, sales, and bank accounts, and was not merely a front for the appellant. Despite financial and management assistance from the appellant, M/s Sparkon was found to have an independent existence. The Commissioner concluded that the financial and managerial ties did not prove that M/s Sparkon was a dummy unit. 3. Invocation of Extended Period of Limitation The appellant argued that the extended period of limitation was not applicable as there was no suppression of facts with intent to avail irregular credit. The show cause notice was issued beyond the normal period of limitation. The court found that the department had been aware of the facts since April 2010, but the show cause notice was issued in June 2012. Therefore, the invocation of the extended period was found unjustified, and the demand was barred by limitation. 4. Imposition of Penalties Penalties were imposed on the appellant for allegedly availing Cenvat credit irregularly. The court noted that the appellant had made payments for the disputed invoices and then taken credit, and M/s Sparkon was duly registered with the Service Tax Department. The irregularity in credit was due to the employer-employee relationship between Mr. Sajan and the appellant, not because of fraudulent intent. Hence, in the interest of justice, the penalties imposed were set aside. The appellant had also reversed the Cenvat credit during the investigation, further justifying the removal of penalties. Conclusion The appeal was allowed in part. The court upheld the denial of Cenvat credit on input services but allowed credit on capital goods. The penalties imposed were set aside, and the extended period of limitation was found inapplicable. The decision emphasized the importance of distinguishing between genuine business relationships and fraudulent setups in the context of availing Cenvat credit.
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