2020 (10) TMI 818 - AT - Central Excise

Levy of Penalty - disallowance of CENVAT Credit - supplementary invoice raised by job worker - suppression of facts or not - revenue neutrality - extended period of limitation - HELD THAT - Admittedly the transaction between BALCO and VAL is duly documented and properly recorded in the books of accounts of both the companies. Further, the method of valuation adopted for clearance of calcined alumina from VAL to BALCO was under a business like formula based on the price of aluminium at LME. Further, from the facts on record, we find that there is no incentive for VAL to suppress the clearance value or pay lower tax. Whatever duty was payable as per the invoice, the same was to be paid by BALCO to VAL. Secondly, it has been demonstrated from the appeal paper book, being the extract of cenvat credit, that VAL alone had sufficient credit balance in their cenvat account exceeding ₹ 1 crore, whereas the duty payable was in few lakhs only and thus the cumulative credit balance in cenvat register of VAL was increasing from month to month. Further, it is evident from record that the parties suo motu changed the basis of valuation to the tender price of NALCO for calcined alumina (under International Competitive Bidding). Revenue Neutrality - HELD THAT - The situation is wholly revenue neutral as BALCO is clearing their finished product on payment of duty, and whatever duty is charged by VAL is available to BALCO as cenvat credit. Suppression of facts or not - penalty - extended period of limitation - HELD THAT - Upon enquiry and investigation by Revenue, disputing the method of valuation of calcined alumina by VAL, on being so advised agreed to the valuation as suggested by Revenue and suo motu deposited the differential duty alongwith interest much prior to issue of show cause notice. VAL also bonafide issued supplementary invoice to BALCO in December, 2009. Thus, we find that the issue is wholly interpretational in nature, and there is no element of fraud, suppression or intention to evade payment of duty. Reliance placed by Revenue on the show cause notice of VAL is erroneous and misconceived. We further find that the allegation by Revenue are bald and unsubstantiated. Only for the reason that VAL instead of contesting the show cause notice went for settlement before the Settlement Commission, no adverse inference can be drawn against the appellant BALCO - The benefit of N/N. 214/86-CE was available to BALCO i.e. they could have received calcined alumina from VAL without payment of duty, as prescribed. Further, the extended period of limitation is not warranted in the facts and circumstances, there being no suppression of facts or attempt to evade duty, etc. Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Disallowance of Cenvat Credit on supplementary invoices.
2. Allegations of undervaluation and suppression of facts.
3. Applicability of Rule 9(1)(b) of Cenvat Credit Rules.
4. Revenue neutrality and bona fide belief.
5. Time-barred nature of the show cause notice.

Detailed Analysis:

1. Disallowance of Cenvat Credit on Supplementary Invoices:
The appeals arose from a common impugned order disallowing Cenvat credit of ?24,65,79,458 availed by M/s Bharat Aluminium Company Limited (Balco) on supplementary invoices raised by their job worker M/s Vedanta Aluminium Limited (VAL), along with penalties under Rule 15 of Cenvat Credit Rules and Rule 26 of Central Excise Rules, 2002. The primary issue was whether Balco could avail Cenvat credit on supplementary invoices issued by VAL for differential duty paid due to undervaluation.

2. Allegations of Undervaluation and Suppression of Facts:
The Department alleged that VAL undervalued the goods cleared to Balco under a job work arrangement, leading to suppression of assessable value and evasion of duty. VAL, upon realizing the error, raised a supplementary invoice for ?24,65,79,458 and paid the differential duty. The Department issued a show cause notice to VAL, which was later settled by the Settlement Commission, imposing penalties and interest.

3. Applicability of Rule 9(1)(b) of Cenvat Credit Rules:
The Department contended that Rule 9(1)(b) of the Cenvat Credit Rules barred Balco from availing credit on supplementary invoices where duty was paid due to suppression, fraud, or willful misstatement. However, the Tribunal found that Rule 9(1)(b) applies only to sales transactions, not job work arrangements. The transaction between Balco and VAL was a job work arrangement, not a sale, and thus Rule 9(1)(b) was not applicable.

4. Revenue Neutrality and Bona Fide Belief:
The Tribunal noted that the situation was revenue neutral as the duty paid by VAL was available as Cenvat credit to Balco. The method of valuation adopted by VAL was based on a business-like formula linked to the London Metal Exchange (LME) price, and later on the spot tender price of NALCO. The Tribunal found no evidence of fraud, suppression, or intent to evade duty, and held that the issue was interpretational in nature. The reliance on the Settlement Commission's order against VAL to deny credit to Balco was deemed erroneous.

5. Time-Barred Nature of the Show Cause Notice:
The show cause notice issued to Balco on 06.05.2013 was found to be time-barred. Balco had informed the Department about the transaction and availed credit in December 2009, and the Department was aware of the transaction by October 2010. The delay in issuing the show cause notice was attributed to the Department, and there was no evidence of suppression or intent to evade duty by Balco.

Conclusion:
The Tribunal allowed the appeals, set aside the impugned order, and held that Balco was entitled to avail Cenvat credit on the supplementary invoices issued by VAL. The extended period of limitation was not applicable, and there was no suppression of facts or intent to evade duty. The Tribunal emphasized the revenue-neutral nature of the transaction and the bona fide belief of the appellants.