2024 (3) TMI 1367 - AT - Central Excise

Availment of excess amount of ineligible CENVAT Credit which was distributed by its ISD - contravention of the provisions of Rules 3 and 7 of the CCR, 2004 - wilful suppression of facts or not - whether the disallowance of credit in the hands of the appellant which was distributed by their Head Quarter at Thane as Input service distributor is correct or otherwise? - HELD THAT - It is found that exactly the same issue in case of Appellant s Tiruchirapalli unit has been decided by the Chennai Bench vide Final Order 2023 (2) TMI 7 - CESTAT CHENNAI , observing that 'There is also nothing brought out on record if the appellant, being a recipient unit, had any role or influence in the manner of distribution so that a case of wilful suppression with an intention to evade payment of duty, etc., could be justified. When the appellant took consistent stand inter alia that its Head office-ISD unit was regularly filing its ER-1 return, that the service provider unit at Head Office had Service Tax liability every year, which was paid in cash and that the entire tax liability was paid in cash every year rather than paying through the CENVAT Credit, the lower authorities have not denied anywhere the above facts.' In view of the decision of the Chennai Bench which squarely is applicable to the facts of present case, there are no merits in the impugned order - Appeal allowed.

Summary

Issues:
1. Interpretation of Rule 7 of the CCR, 2004 regarding distribution of CENVAT credit by Input Service Distributor.
2. Allegation of availing excess ineligible CENVAT credit and suppression of facts.
3. Adjudication of penalty, interest, and demand for recovery of excess credit.
4. Application of precedents and case laws in determining the legality of the disallowed credit.
5. Consideration of revenue neutrality and time-bar in the demand for recovery.

Analysis:
1. The judgment revolves around the interpretation of Rule 7 of the CCR, 2004 concerning the distribution of CENVAT credit by an Input Service Distributor (ISD). The appellant was alleged to have distributed common credit among its manufacturing units without considering the ISD unit itself, resulting in the transfer of excess credit. The dispute was divided into two periods: October 2014 to March 2016 and April 2016 to June 2017. The change in wording from "may distribute" to "shall distribute" was crucial in determining the mandatory nature of credit distribution. The appellant's argument regarding pre-April 2016 rules was not accepted, leading to the confirmation of demand for the latter period due to non-compliance with Rule 7.

2. The appellant faced allegations of availing excess ineligible CENVAT credit, leading to a show cause notice for recovery of Rs. 88,28,040. The order in original confirmed the demand, imposed a penalty, and directed payment of the dues. The subsequent dismissal of the appeal by the first appellate authority prompted the appellant to file the current appeal.

3. The judgment addressed the adjudication of penalty, interest, and the demand for recovery of excess credit. The impugned order was based on the findings that upheld the demand and imposed penalties. However, the appellate tribunal found no merit in the impugned order based on the decision of the Chennai Bench, leading to the allowance of the appeal.

4. The application of precedents and case laws played a significant role in determining the legality of the disallowed credit. The judgment referred to various judgments and decisions, highlighting that the disallowance of credit in the appellant's case was incorrect and unsustainable in the eye of the law. The Chennai Bench's decision was deemed applicable to the present case, leading to the setting aside of the impugned order.

5. The judgment considered the concept of revenue neutrality and the time-bar in the demand for recovery. It emphasized that the mere allegation of wilful suppression with an intent to evade tax was insufficient without proof of revenue loss to the exchequer. The judgment concluded that the disallowance of CENVAT credit in the appellant's case was incorrect and set aside the impugned order based on the discussions and findings presented.