2023 (2) TMI 1091 - AT - Central Excise

CENVAT Credit - distribution of common input services - credit availed on the basis of ISD challans raised by their Corporate Office situated in Chennai and four Regional Offices situated in Hyderabad, Bangalore, Chennai and Cochin - Department alleged that the credit availed on quantity based distribution is in violation of amended Rule 7 of Cenvat Credit Rules, 2004 - extended period of limitation - HELD THAT - Section 11A of Central Excise Act, 1944 empowers the Central Excise Officer to initiate proceedings where duty has not been levied or short levied within 6 months from the relevant date but this period to commence proceedings under proviso to the said section stands extended to 5 years if the duty could not be levied or it was short levied due to fraud, collusion, willful misstatement or suppression of facts. A bare reading of the proviso to Section 11A indicates that it is in nature of an exception to the principal clause. Therefore, its exercise is hedged on one hand with existence of such situations as have been visualised by the proviso by using such strong expression as fraud, collusion etc. and on the other hand it should have been with intention to evade payment of duty. Both must concur to enable the Excise Officer to proceed under this proviso and invoke the exceptional power - However, it is the settled cannon of decision that when the law requires an intention to evade payment of duty then it is not mere failure to pay duty. It must be something more. Except that in few of the statements by ISD invoices in one of the columns, the credit was distributed by specifying turnover as quantity based and in some other it was on allocation weight . It is observed in terms of Circular No. 178/4/2004-S.T. dated 11.07.2014 as relied upon by the department, the distribution as per allocation weight is also based on turnover, hence, apparently such distribution is also in compliance of Rule 7(d) of CCR, 2004. Extended period of limitation - HELD THAT - There is no willful intent of any of the three appellants to evade their duty/tax liability. Hence, there cannot be suppression on the part of the appellant as alleged and confirmed. The appellant was availing and utilizing such amount of Cenvat credit as was distributed by their ISD. The question of suppression or evasion does at all arise in such a case at least against the appellants who were the receivers of the distributed Cenvat credit. They otherwise were regularly mentioning the availment/utilized amount in their ER returns. In light of these findings, we hold that the department was not entitled to invoke the extended period of limitation. Hence, the major demand for the period w.e.f. August, 2012 to March 2016 is liable to be set aside. The demand even for the normal period is also not sustainable - the interests and penalties has wrongly been invoked - Appeal allowed.

Summary

Issues Involved:
1. Invocation of the extended period of limitation.
2. Compliance with Rule 7 of the Cenvat Credit Rules, 2004.
3. Revenue neutrality.
4. Procedural lapses versus substantial benefit.

Detailed Analysis:

1. Invocation of the Extended Period of Limitation:
The appellants argued that the extended period of limitation was wrongfully invoked as they had regularly filed their ER-1 returns and provided all necessary documents during the audit in December 2013. The tribunal observed that Section 11A of the Central Excise Act, 1944, allows for an extended period of five years only in cases of fraud, collusion, willful misstatement, or suppression of facts with intent to evade duty. The tribunal emphasized that the burden of proving such intent lies with the department. Given that the appellants had disclosed all relevant information and there was no willful intent to evade duty, the tribunal held that the extended period of limitation was not applicable. Consequently, the major demands for the period from August 2012 to March 2016 were set aside on the grounds of limitation.

2. Compliance with Rule 7 of the Cenvat Credit Rules, 2004:
The department alleged that the appellants violated Rule 7 of the Cenvat Credit Rules, 2004, by distributing credit on a quantity basis instead of a turnover basis. The tribunal noted that Rule 7 was amended in 2012 to prescribe specific conditions for the distribution of Cenvat credit. However, the tribunal found that the appellants had complied with the rule in most cases and that any deviations were procedural lapses rather than substantive violations. The tribunal also referred to a CBEC Circular explaining the distribution of credit, which supported the appellants' method in some instances. Therefore, the tribunal concluded that the alleged violations were not sufficient to deny the substantial benefit of Cenvat credit.

3. Revenue Neutrality:
The appellants contended that the entire exercise was revenue neutral, as the credit availed was used to discharge tax liabilities. The tribunal agreed, citing several judicial precedents, including decisions of the Hon'ble Supreme Court and this tribunal, which held that revenue neutrality negates the intent to evade duty. The tribunal found that the appellants' actions did not result in any loss to the revenue, reinforcing the argument for revenue neutrality. Consequently, the tribunal held that the demand for the remaining period from October 2015 to March 2017 was also unsustainable due to revenue neutrality.

4. Procedural Lapses versus Substantial Benefit:
The tribunal emphasized that procedural lapses should not result in the denial of substantial benefits like Cenvat credit. The tribunal cited various judicial decisions supporting this view, including rulings by the Hon'ble High Court of Gujarat and this tribunal. The tribunal found that the appellants had complied with the substantive requirements of Rule 7 and that any procedural deficiencies did not warrant the denial of Cenvat credit. The tribunal also noted that there was no dispute regarding the eligibility of the input services or the validity of the ISD invoices.

Conclusion:
The tribunal set aside the orders under challenge and allowed the appeals, concluding that the extended period of limitation was inapplicable, the alleged violations of Rule 7 were procedural lapses, the exercise was revenue neutral, and substantial benefits should not be denied due to procedural deficiencies.