2022 (8) TMI 825 - AT - Central Excise

Distribution of ITC - sales agents have charged service tax on commission so received by them - Department formed an opinion that since the (Consignment Sales Agents) CSAs were appointed for the sale promotion of chewing tobacco, the Cenvat has wrongly been distributed by the ISD to the appellants who were engaged in manufacturing Kiwam - Rule 7 C of Cenvat Credit rules - extended period of limitation - suppression of facts or not - HELD THAT - Since Rule 7C has been amended w.e.f. 01.04.2016 and the period of impugned demand is till 30.06.2016 that the amended Rule 7C is not applicable to the present case. Hence the effect of word shall of the amended provision cannot be implemented upon the demand and period of demand in the present case. Since the appellant is observed to be dealing with the same product, though an ingredient thereof, as that being manufactured by ISD finally and for which the service in question was availed, hence even though the service precisely was not used in the appellant premises but in the different premises of the ISD Cenvat Credit cannot be denied by invoking rule 7 C of Cenvat Credit Rules - keeping in view the peculiar fact of the present case that the appellant herein was manufacturing an inseparable essential ingredient for the final product of the ISD that the input service of sales agent availed by the ISD for promotion of tobacco is held to have rightly been distributed to the appellant. The sole reliance of the adjudicating authority below, on Rule 7 C, the amendment thereof, is held to be absolutely wrong also for the reason that amendment came into effect after the period of demand in the present case was over. Extended period of limitation - Suppression of facts or not - HELD THAT - The only ground taken by the adjudicating authority is that the documents in relation to availment of credit were not the part of those ERs is held not acceptable in the light of the fact that appellant had never committed any default or delay while filing the ER Returns. The returns contained all the requisite details as that of the invoice numbers, the amount of invoice, the amount of service tax etc. Nothing has stopped Department to look into those invoices - the allegation of suppression of facts against the appellant are without any basis. Accordingly the foremost reason for invoking the extended period of limitation remains not available with the Department. Otherwise also the onus is always upon the Department to prove the alleged misrepresentation or suppression of fact that too with an intent to evading duty. Admittedly, present is not the case of duty evasion. There is no evidence for any positive act on part of the appellant to prove the alleged misrepresentation or suppression of facts. For want of any evidence by the Department to prove the alleged suppression, fraud or collusion on part of the appellant to not to pay or to short pay the duty. It is held that Show Cause Notice should have been issued in the normal period of limitation. Since the SCN is issued after an expiry of period of more than 2 years same is held to be barred by time - Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Applicability of Rule 7C of Cenvat Credit Rules pre and post amendment.
2. Entitlement of the appellant to Cenvat Credit.
3. Invocation of the extended period of limitation.

Issue-Wise Detailed Analysis:

1. Applicability of Rule 7C of Cenvat Credit Rules pre and post amendment:

The primary issue revolves around whether the amended Rule 7C of the Cenvat Credit Rules, which came into effect on 01.04.2016, is applicable to the period under dispute (2014-15 and 2015-16). The appellant argued that the amendment should not apply retrospectively. The Tribunal noted that Rule 7C prior to the amendment provided an option to the assessee to distribute the Cenvat credit, as indicated by the word "may." Post-amendment, the rule mandates distribution, as indicated by the word "shall." The Tribunal concluded that the amended Rule 7C is not applicable to the period in question, supporting this with references to relevant case law, including the decision of the Hon'ble High Court of Mumbai in Commissioner of C.T., Pune €“ I Commissionerate vs. Oerlikon Balzers Coating India Pvt. Ltd. (2019 (366) ELT 624).

2. Entitlement of the appellant to Cenvat Credit:

The appellant contended that the ISD (Input Service Distributor) distributed the input service credit proportionately based on turnover, and the service of consignment sales agents (CSA) was essential for the final product, i.e., chewing tobacco, which includes Kiwam manufactured by the appellant. The Tribunal observed that Rule 7C, both pre and post amendment, is silent on the nature of the service received and the product manufactured. It emphasized that the final product of the ISD and both its units was chewing tobacco, and Kiwam is an essential ingredient for it. The Tribunal supported its decision by referencing the case of Piramal Glass Pvt. Ltd. Vs. Commissioner of Central Excise, Surat (2021 (55) GSTL 22), which held that proportionate credit cannot be denied if common input services are used for both units. The Tribunal concluded that the appellant was rightly entitled to the Cenvat credit.

3. Invocation of the extended period of limitation:

The appellant argued that the Show Cause Notice (SCN) issued in 2019 for the period 2014-15 and 2015-16 was beyond the normal period of limitation and thus barred by time. The Tribunal noted that the appellant regularly filed ER-1 returns and provided all necessary documents during audits, negating any suppression of facts or malafide intent. The Tribunal cited the Hon'ble Apex Court's decision in ITW Signode India Ltd. Vs. Collector of Central Excise (2003 (158) ELT 403 (SC)), which stated that extended limitation can only be invoked on a positive act of fraud or suppression. The Tribunal concluded that the extended period of limitation was not applicable, rendering the SCN time-barred.

Conclusion:

The Tribunal set aside the order of the Commissioner (Appeals), allowing the appeal. It held that the appellant was entitled to the Cenvat credit and that the SCN was barred by limitation. The Tribunal emphasized that the amended Rule 7C was not applicable to the period under dispute and that there was no evidence of suppression or fraud by the appellant.