2018 (8) TMI 311 - AT - Central Excise

Reversal of SAD Credits - Department has alleged that quantities of wire bars cleared as such were only pertaining to the imported wire bars and therefore. Credit of Additional duty (SAD) amounting to ₹ 4,21,97,191/- should have been reversed by the appellants along with interest - Held that - The department has taken the extreme view that all sales effected for the wire bars during the period of demand were only of the imported quantity of wire bars and therefore, the CENVAT credit of SAD pertaining to such quantities have been demanded. The department does not have any concrete evidence to establish that the inputs namely wire bars cleared as such, for sale were only from the imported quantities of wire bars on which credits of SAD has been taken by the appellants. There is no merit in demanding reversal of entire amount of SAD on the entire quantity of wire bars sold by the assessee as such since 2010 to 2011 and without any scientific or factual basis when facts remain that the as such quantities were both from imported as well as locally purchased consignments - The methodology of reversal of cenvat credit adopted by appellant is based on scientific and factual basis and therefore, the amount of SAD is reversed by them along with interest, need to be accepted. Penalty - Held that - The proper compliance of Rule 3 of Cenvat Credit Rules, 2004 has been made - penalty not justified. Appeal disposed off.

Summary

Issues:
Cenvat credit reversal on imported wire bars, Demand of cenvat credit, Reversal of SAD credits, Proportionate credit reversal, Compliance with Cenvat Credit Rules, Penalty imposition.

Analysis:

1. The appellants, engaged in manufacturing ball bearings and axle boxes, availed cenvat credit on imported and domestically procured wire bars. The issue arose when they failed to reverse the credits of Additional duty (SAD) on imported wire bars cleared as such. The department demanded reversal of SAD credit amounting to &8377; 4,21,97,191/- along with interest for the period April 2010 to March 2014, invoking penal provisions under section 11AC read with Rule 15 of Cenvat Credit Rules, 2004. The Commissioner confirmed the charges, leading to the appeal.

2. The core dispute revolved around the clearance of imported and domestically procured wire bars without separate records for SAD credit reversal. The appellants voluntarily reversed a portion of SAD credits, arguing that they proportionately reversed the credits based on the purchase of imported and locally procured wire bars. The contention was that no records were maintained at the time of sale to distinguish between imported and domestically procured wire bars.

3. Upon hearing both sides and examining the records, it was observed that the department alleged that all sales were of imported wire bars, justifying the demand for SAD credit reversal. However, the appellants calculated the reversal proportion based on annual procurement ratios of imported and locally procured wire bars. The Tribunal found the appellant's methodology scientifically sound and factual, rejecting the department's demand for complete SAD reversal without concrete evidence.

4. The Tribunal concluded that the appellant's approach of proportionate reversal of SAD credits based on the quantities of imported and locally procured wire bars was valid. The voluntary reversal of SAD credits before the show cause notice was issued demonstrated compliance with Rule 3 of Cenvat Credit Rules, 2004. Consequently, the Tribunal held that the amount reversed by the appellant, along with interest, sufficed to meet the cenvat credit demand, and no penalty was warranted.

5. Therefore, the Tribunal modified the original order, accepting the appellant's reversal of &8377; 2,25,33,782/- towards the sale of inputs and interest payment of &8377; 54,06,579/- as sufficient compliance with the Cenvat Credit Rules, 2004, and disposed of the appeal accordingly.