2024 (8) TMI 1491 - AT - Central Excise

Wrongful availment of CENVAT Credit on capital goods - contravention of provisions of Rule 4(2)(a) of CCR, 2004 - HELD THAT - In the present case, the appellant had transferred the capital goods from their Vellore factory to the appellant unit situated in Ranipet on account of shifting of the entire factory. Rule 10 of CCR, 2004 allows transfer of credit in case of shifting of factory. Hower, the appellant had opted to raise an invoice for shifting the capital goods to their unit at Ranipet. They paid the duty on the capital goods as per the invoice raised while shifting and the credit of such duty was availed in the Ranipet unit. Being shifting of the capital goods, the appellant took entire credit in the same year. The allegation is that the appellant ought not to have taken entire credit in the same financial year. For this reason, 50% of the credit to the tune of Rs. 26,97,256/- has been denied by the Department and the said amount has been confirmed alleging violation of Rule 4(2) of Central Excise Rules, 2002. It is to be noted that even if the appellant is entitled to take only 50% credit in the first financial year, they would be able to take the balance credit in any subsequent year. The error is only with regard to the procedure of taking credit - When the appellant is eligible to take the balance credit in subsequent financial year and has paid the interest and penalty in this regard, the Department ought not to have issued any Show Cause Notice. In any case, it is only a procedural infraction, and the appellant having paid interest as well as the penalty, the demand of duty confirmed along with interest and penalties in this regard requires to be set aside. Demand of duty raised alleging violation of Rule 8(3A) of Central Excise Rules, 2002 - HELD THAT - The Hon ble High Court of Bombay in the case of THE COMMISSIONER OF CENTRAL EXCISE CUSTOMS NASHIK II COMMISSIONERATE VERSUS M/S. NASHIK FORGE PVT. LTD. 2018 (9) TMI 1582 - BOMBAY HIGH COURT has held that Rule 8(3A) to be unconstitutional as it infringes upon the substantive right of an assessee to utilize Cenvat credit. Further, the Tribunal in the case of INDUS TROPICS LTD VERSUS C.C.E. S.T. -RAJKOT 2023 (3) TMI 950 - CESTAT AHMEDABAD has followed the decisions of various High Court to set aside the demand alleging violation of Rule 8(3A) of Central Excise Rules, 2002. The demand raised alleging violation of Rule 8(3A) cannot sustain and requires to be set aside - the impugned order is set aside - The appeal is allowed.

Summary

Issues Involved:

1. Legality of the demand of Rs. 26,97,256/- for alleged wrong availment of credit on capital goods.
2. Validity of demand raised under Rule 8(3A) of Central Excise Rules, 2002.

Issue-wise Detailed Analysis:

1. Legality of the Demand for Alleged Wrong Availment of Credit on Capital Goods:

The appellant engaged in manufacturing electrical components transferred capital goods from Vellore to Ranipet due to factory shifting. Instead of transferring credit as allowed under Rule 10 of the CENVAT Credit Rules, 2004, the appellant raised an invoice and paid duty on these goods, availing the entire credit in the same financial year. The Department contended that the appellant should have availed only 50% of the credit in the first year as per Rule 4(2) of the CENVAT Credit Rules, 2004, and demanded Rs. 26,97,256/- for excess credit availed. The appellant argued that the error was procedural, having paid interest and penalty for the excess credit. The Tribunal noted that the appellant was eligible to take the balance credit in subsequent years and had rectified the procedural error by paying the required interest and penalty. Thus, the demand was deemed unwarranted and set aside as it was a procedural infraction.

2. Validity of Demand Raised Under Rule 8(3A) of Central Excise Rules, 2002:

The Department alleged that the appellant defaulted in duty payment for December 2012 and January 2013, violating Rule 8(3A) by using Cenvat credit during the default period. However, Rule 8(3A) had been struck down as unconstitutional by the Gujarat High Court in Indsur Global Ltd. Vs. Union of India and by the Madras High Court in Malladi Drugs & Pharmaceuticals Ltd. Vs. The Union of India. The Supreme Court's decision to dispose of the Department's appeal in the Indsur Global case without pressing the matter upheld the High Courts' rulings. The Tribunal, considering these precedents, concluded that the demand based on Rule 8(3A) was unsustainable and set it aside.

Conclusion:

The Tribunal found that the procedural error regarding credit availing was rectified by the appellant, and the demand for excess credit was not justified. Additionally, the demand under Rule 8(3A) was invalid due to its unconstitutionality as determined by multiple High Courts and upheld by the Supreme Court's disposition of related appeals. Consequently, the appeal was allowed, setting aside the impugned order, and the cross-objection by the Department was disposed of.