2018 (11) TMI 1273 - AT - Central Excise

CENVAT Credit - finished goods or not - welding electrodes, Saw Flux, Saw Wire, Filler Wire and CO2 wire alongwith Flux Cored Wire - these goods were never received physically in the unit of Appellant No.1, but were cleared directly from the unit of Appellant No.2 to the customers - denial of credit on the ground that no manufacturing process taking place - principles of natural justice - time limitation - penalty. Held that - The record about receipt of goods in the factory of Appellant No.1 alongwith the record of Appellant No.2 was well produced on record. It appears that the adjudicating authority is miserably silent about scrutinising the said record. It is, therefore, opined that the adjudicating authority has committed an error while merely relying upon the lease agreement about manufacturing setup to have been leased out to the Appellant No.2 - The factum of converting the semi-finished goods into finished one by the Appellant No.1 itself and the factum of presence of the set-up about ovenizing and packing required for converting the products into finished states with Appellant No.1 as well has miserably been ignored. Irrespective that the process of said ovenizing and packing may not amount to manufacture but the apparent and admitted fact remains is that Appellant No.1 only had paid the Excise duty while clearing the goods which were received from Appellant No.2 in semi-finished state. Once the Department has accepted the duty on goods, Cenvat Credit ought not to be denied by them irrespective the procedure is not that of the manufacture - The situation stands clarified by the Departments own Circular No.911/01/2010 CX dated 14.01.2010. In the present case, the Cenvat Credit availed is ₹ 2,05,59,139/- against the Central Excise duty of ₹ 2,20,67,060/- on the goods cleared by the Appellant No.1. The duty paid stands more than the credit availed. Seen from this angle also, there is no loss to the Revenue. This has also been overlooked by the adjudicating authority below. Time limitation - intent to evade not present - penalty - Held that - Even if, the Appellant No.1 was not doing any activity which amounts to manufacture, but he has paid the excise duty while clearing the goods from his premises and the Cenvat Credit availed by him is lesser than the amount of said duty availed, the question of evasion of tax is not sustainable - Once, there is no evasion, the intent of evasion has no existence. For the same reason, the question does not arise for the alleged wilful suppression or mis-representation of the fact - penalty not warranted and is set aside - SCN also barred by time. Appeal allowed - decided in favor of appellant.

Summary

Issues:
- Challenge to Order-in-Original by Company and Directors
- Alleged wrongful availment of Cenvat Credit
- Dispute over manufacturing facilities and processes
- Interpretation of lease agreement
- Time limitation for invoking extended period

Issue 1: Challenge to Order-in-Original by Company and Directors
The judgment addresses three appeals, one by the Company and two by its Directors, contesting Order-in-Original No. 63 dated 16.01.2017 based on a common show cause notice from 07.06.2016.

Issue 2: Alleged wrongful availment of Cenvat Credit
The Department alleged that the Company was wrongfully availing Cenvat Credit on goods like welding electrodes, Saw Flux, Saw Wire, Filler Wire, and CO2 wire, which were not physically received at their unit but cleared directly from another unit. The Department proposed recovery of availed Cenvat Credit along with interest and penalty for wilful suppression.

Issue 3: Dispute over manufacturing facilities and processes
The Company argued that despite leasing out manufacturing facilities for some products, they still processed semi-finished goods into finished products, discharging excise duty. They contended that once duty was paid, Cenvat Credit could not be denied, citing relevant case laws.

Issue 4: Interpretation of lease agreement
The Company criticized the Principal Commissioner for misinterpreting the lease agreement, leading to the denial of Cenvat Credit. They argued that the order was based on conjectures and surmises, seeking its dismissal.

Issue 5: Time limitation for invoking extended period
The judgment analyzed the time limitation aspect, holding that the show cause notice was barred by time as the demand beyond one year from the notice date lacked grounds for invoking the extended period. The absence of tax evasion negated the need for penalties on the Company and its Directors.

The Tribunal found that the Company retained the setup to convert semi-finished goods into finished products, paying excise duty upon clearance. The Principal Commissioner's oversight of crucial facts and failure to scrutinize relevant records led to an erroneous confirmation of the demand. Despite the process not amounting to manufacture, the duty payment validated Cenvat Credit availment, as per established legal precedents.

The judgment referenced Rule 16 of Central Excise Rules, 2002, emphasizing the Company's compliance with credit reversal requirements. Citing a relevant case, it highlighted that availing credit at receipt and paying duty at clearance aligned with Rule 16 provisions, supporting the Company's position.

Regarding the time limitation issue, the Tribunal deemed the show cause notice time-barred, as no suppression or intent to evade tax was evident. Absence of tax evasion negated penalty imposition on the Company and its Directors, leading to the set aside of the order and dismissal of penalties, thereby allowing all three appeals.