2022 (5) TMI 1301 - AT - Central Excise

Recovery of wrongfully availed CENVAT Credit - capital goods - manufacture of exempt products only or not - Rule 6(4) or Rule 6(5) of Cenvat Credit Rules, 2004 - incorrect classification of Jointing Compound - interpretation of Rule 6 (4) of CENVAT Credit Rules, 2004 - HELD THAT - Even if at the time of the receipt of the capital goods, the finished goods manufactured and cleared by the appellant were exempt from payment of duty or attracted duty at nil rate, but subsequently the capital goods were utilized for manufacture and clearance of the goods on payment of duty, then the CENVAT credit in respect of such capital goods could not be denied subject to the restrictions as per the Notification No. 13/2016-CE (NT) dated 1.3.2016. In the terms of amendment made the capital goods should have been utilized for manufacture and clearance of goods on payment of duty within two years of the commercial operation of the capital goods. The facts as have been recorded by the Commissioner, admit that indeed these capital goods were utilized within the period of two years from the start of their commercial operations for manufacture and clearance of the finished goods on payment of duty. It is not even the case of revenue that throughout these capital goods were exclusively used for manufacture and clearance of finished goods exempt from payment of duty. As there is no denial of the fact that appellants have utilized theses capital goods for manufacture and clearance of the finished goods on payment of duty, in the manner as prescribed by the amended rule 6 (4) the CENVAT Credit could not have been denied. In view of this we do not intend to dwell on the issue of classification/ misclassification of the finished goods, which have been raised by the impugned order. Extended period of limitation - penalty - HELD THAT - All the facts in respect of availment of CENVAT Credit on the capital goods, input services and the clearance of the finished goods were in the knowledge of the department throughout. Even if there were some interpretational issues the same cannot be said to be the reason for invoking the extended period. There is no position to sustain the impugned order on merits or on limitation - Since the demand do not sustain on merits and also on limitation, the confiscation and penalties imposed too cannot be sustained - appeal allowed - decided in favor of appellant.

Issues Involved:
1. Admissibility of CENVAT credit on capital goods used for manufacturing exempted goods.
2. Classification of Jointing Compound under the appropriate tariff heading.
3. Invocation of the extended period of limitation for demand and recovery.
4. Imposition of penalties and confiscation of capital goods.

Issue-wise Detailed Analysis:

1. Admissibility of CENVAT Credit on Capital Goods:
The core issue was whether the CENVAT credit availed by the appellant on capital goods used for manufacturing exempted goods was correct. The Commissioner disallowed the credit, citing Rule 6(4) of the CENVAT Credit Rules, 2004, which prohibits credit on capital goods used exclusively for manufacturing exempted goods. The Commissioner noted that the capital goods were initially used to manufacture exempted goods like Gypsum Plaster and Gypsum Plaster Board. However, the appellants argued that they intended to use these goods for manufacturing dutiable goods, and eventually did so. The Tribunal found merit in the appellant's argument, referencing multiple cases where credit was allowed if the capital goods were later used for dutiable goods. The Tribunal also considered the retrospective amendment to Rule 6(4) by Notification No. 13/2016-CE(NT), which allowed credit if the capital goods were used for dutiable goods within two years from the start of commercial production. The Tribunal concluded that the appellants were entitled to the CENVAT credit as the capital goods were eventually used for manufacturing dutiable goods within the stipulated period.

2. Classification of Jointing Compound:
The Commissioner alleged that the appellants misclassified Jointing Compound under Tariff Item (TI) 6809 9000 instead of the correct TI 2520 2010, which would render it exempt from duty. The appellants contended that their classification was correct and that the product was always intended to be dutiable. The Tribunal did not delve deeply into this issue, as the primary focus was on the admissibility of CENVAT credit. However, it noted that the Commissioner’s findings on misclassification were part of the broader issue of determining the eligibility for CENVAT credit.

3. Invocation of the Extended Period of Limitation:
The Commissioner invoked the extended period of limitation under Section 11A of the Central Excise Act, 1944, alleging suppression of facts by the appellants. The appellants argued that all relevant facts were disclosed in their ER-1 returns and that there was no intent to evade duty. The Tribunal agreed with the appellants, noting that the facts regarding the availment of CENVAT credit and the classification of goods were always within the knowledge of the department. The Tribunal referenced the Supreme Court’s decision in L.M.P. Precision Eng. Co. Ltd., which held that extended limitation cannot be invoked in cases of mere interpretational issues. Consequently, the Tribunal found that the extended period of limitation was not applicable.

4. Imposition of Penalties and Confiscation of Capital Goods:
The Commissioner imposed penalties and ordered the confiscation of capital goods, with an option to redeem them on payment of a fine. The Tribunal, however, found that since the demand was not sustainable on merits and was also time-barred, the penalties and confiscation could not be upheld. The Tribunal observed that the appellants had a bona fide belief in their eligibility for CENVAT credit and that there was no deliberate intent to evade duty. The penalties and confiscation were thus set aside.

Conclusion:
The Tribunal allowed the appeal, setting aside the impugned order on both merits and limitation grounds. The demand for recovery of CENVAT credit, interest, penalties, and confiscation of capital goods was not sustained. The Tribunal emphasized that the appellants were entitled to CENVAT credit as the capital goods were used for manufacturing dutiable goods within the prescribed period, and there was no suppression of facts warranting the invocation of the extended period of limitation.

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