2018 (12) TMI 428 - AT - Central Excise

CENVAT Credit - common input and input services used for dutiable and exempted final products - non-maintenance of separate account - Rule 6(3) of CCR - extended period of limitation - Scope of SCN - Held that - Admittedly reversal of proportionate credit was made much before issue of show-cause notice. Show-cause notice doe not reveal as to how the matter has gone to the knowledge of the department or brought to the notice of the parties but order-in-original at para 2 indicates that during the course of audit, it was noticed that assessee had availed cenvat credit on common inputs and input services which are used in the manufacture of dutiable as well as exempted final products - there is force in the submission of ld. Counsel for the appellant that it had not availed credit of duty paid on common inputs and the dispute is therefore restricted to availment of cenvat credit on common input service. Extended period of limitation - Held that - The respondent department has not disputed the figures of proportionate payment but order-in-original reveals that in not giving such intimation/option, the assessee has suppressed the material fact that they have availed cenvat credit on common input services which was noticed only during audit, for which extended period of limitation as envisaged in proviso to Section 11A(1) prior to 08.04.2001 and Section 11A(4) with effect from 08.04.2001 is justifiably invocable. Statutory audit procedure - Held that - It cannot be said that only because audit party had found non-maintenance of separate records appellant is to be tasked for suppression etc. In exercise of option as contemplated in Rule 6(3A), the assessee has to choose either of those options, and non-intimation of such exercise of option can only be treated as mere procedural lapse. Further, nowhere in the said procedure it has been mentioned that in the event of such intimation not being given, tax liability at the higher rate would be applicable to the assessee for which the order passed by the Commissioner confirming 6% liability against proportionate availment of 1.33% credit is not sustainable. Appeal allowed - decided in favor of appellant.

Summary

Issues: Imposition of duty demand of 6% against availment of common input and input services without maintenance of separate account for dutiable and exempted final products; Reversal of proportionate credit under Rule 6(3) along with penalty; Failure to exercise the option in writing under Rule 6(3)(ii) read with 6(3A) of the Cenvat Credit Rules; Allegation of suppression of fact; Justifiability of duty demand; Statutory audit procedure; Non-maintenance of separate records; Exercise of option under Rule 6(3A).

The judgment addresses the appeal against the imposition of a 6% duty demand on the appellant for availing cenvat credit without maintaining separate accounts for dutiable and exempted final products. The appellant voluntarily reversed proportionate credit under Rule 6(3) but faced penalty invoking extended jurisdiction. The key issue revolved around the failure to exercise the option in writing under Rule 6(3)(ii) read with 6(3A) of the Cenvat Credit Rules. The appellant argued that the non-intimation of the option should not result in a higher tax liability, citing judicial precedents. The department justified the duty demand due to the lack of separate records maintained by the appellant.

During the hearing, the appellant's counsel highlighted that the reversal of credit was done before the show-cause notice and emphasized that the dispute was limited to the availment of credit on common input services, not common inputs. The department, however, supported the adjudicating authority's decision, pointing out the absence of separate records as the basis for the duty demand. The Tribunal noted discrepancies in the order-in-original regarding the appellant's availing of credit on raw materials, indicating a lack of basis for such claims.

The Tribunal analyzed the statutory audit procedure, emphasizing the purpose of audit to ensure tax compliance and discussing participative audit practices. It was highlighted that the non-maintenance of separate records alone should not lead to allegations of suppression. The Tribunal considered the appellant's failure to formally exercise the option under Rule 6(3A) as a procedural lapse, citing previous case laws to support this view. Ultimately, the Tribunal allowed the appeal, setting aside the Commissioner's order and relieving the appellant of the duty demand and associated penalties.

In conclusion, the judgment delves into the nuances of cenvat credit rules, procedural requirements, audit practices, and the justifiability of duty demands in cases of non-compliance with record-keeping obligations. The decision underscores the importance of formal compliance with statutory provisions while also providing clarity on the consequences of procedural lapses in such matters.