2018 (11) TMI 488 - AT - Central Excise

CENVAT Credit - input service distribution - denial on the ground that the ISD invoices should have been issued in respect of the three factories on pro rata basis - Rule 7(d) of the CENVAT Credit Rules, 2004 - extended period of limitation - Held that - The period of dispute is from 2011-12 to December, 2014 and admittedly, the amendment to Rule 7 was with effect from 01.04.2012 and hence, there was nothing in the statute requiring pro rata distribution. Moreover, there is no service tax applicability to the appellant s factory at Jammu & Kashmir - The appellant s claim as to its factory at Vapi having started only in the year 2013-14 merits credence since the same has not been negated by the Revenue. Extended period of limitation - Held that - Revenue has only mechanically alleged suppression on the ground that but for Revenue s Audit, the same would not have come to light - extended period cannot be invoked. Appeal allowed - decided in favor of appellant.

Issues:
1. Disallowance of CENVAT Credit availed by the appellant's factory at Ranipet.
2. Allegation of suppression and extended period of limitation.
3. Interpretation of Rule 7(d) of the CENVAT Credit Rules, 2004.
4. Applicability of service tax to the appellant's factory at Jammu & Kashmir.
5. Justification for invoking extended period of limitation.
6. Compliance with audit procedures and regular filing of ER-1 returns.

Analysis:

1. The appellant, a manufacturer of chemicals with factories in multiple locations, faced a Show Cause Notice proposing disallowance of CENVAT Credit at the Ranipet factory. The issue revolved around the alleged non-compliance with Rule 7(d) of the CENVAT Credit Rules, 2004, for the period 2011-12 to December 2014. The Order-in-Original partially upheld the demand, leading to the appellant's appeal before the Commissioner of Central Tax, who affirmed the demand and penalty but modified the interest. The appeal sought to challenge the partial disallowance.

2. The appellant argued against the Show Cause Notice issued in 2016, contending that the amendment to Rule 7(d) was effective from 2012, and the audit visit in 2015 indicated the Department's awareness of the situation. The appellant highlighted that the turnover of the Vapi factory was negligible in the relevant years, and the exemption of service tax in Jammu & Kashmir precluded the distribution of CENVAT Credit to that location. Additionally, the appellant reversed the allegedly wrongly availed credit as a precautionary measure. The Revenue, however, supported the lower authorities' findings.

3. The Tribunal examined the period in dispute, noting the amendment to Rule 7 in 2012 and the absence of service tax applicability to the Jammu & Kashmir factory. The Tribunal accepted the appellant's claim regarding the commencement of operations at the Vapi factory in 2013-14. Emphasizing the audit visit date and the regular filing of ER-1 returns, the Tribunal found no justification for invoking the extended period of limitation.

4. Relying on legal precedents, including a Supreme Court judgment and a High Court ruling, the Tribunal determined that the Revenue's invocation of the extended period of limitation was unjustified. The Tribunal cited the need for substantial evidence to allege suppression, which was lacking in the present case. Consequently, the Tribunal set aside the impugned order, allowing the appeal and granting consequential benefits as per the law.

This detailed analysis of the judgment showcases the intricacies of the issues involved and the Tribunal's thorough examination of the legal and factual aspects to arrive at a reasoned decision.

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