2024 (11) TMI 1418 - AT - Central Excise

CENVAT Credit - invoices that are addressed to unit I (another unit) of the appellant - procedural discrepancies in the invoicing - contravention of the provisions of Rule 3(1) and Rule 9(1) of the Cenvat Credit Rules 2004 - invocation of extended period of limitation. CENVAT Credit - HELD THAT - The learned adjudicating authority finds that as per the provisions of Rule 9(2) of the Cenvat Credit Rules 2004 and as per the decision rendered on the subject issue by various Tribunals when the substantive issue of receipt of the goods in the factory of the manufacturer and its use in the manufacture of the final product is established beyond doubt any other procedural lapses such as mistakes in the invoices should not lead to denial of the substantial benefit like cenvat credit. Having found thus he proceeds to indicate that the substantive point to be proved for eligibility of cenvat credit are that (a) the goods should have been received in the factory of manufacture and should have been used in or in relation to the manufacture of the final products and (b) the services should have been received by the manufacturer and should have been used in or in relation to the manufacture of the final products. There are no reason to disbelieve the appellant s contention of having produced the relevant records for verification merely because the Divisional Assistant Commissioner who has otherwise conducted the verification of records as instructed has instead of forwarding all the records and registers chosen to forward only the screen shots of the GRNs which documents would readily form a point of reference for the goods details of which were verified - had the learned adjudicating authority harboured any doubt that the Divisional Assistant Commissioner has not carried out the verification report as instructed it was incumbent upon the learned adjudicating authority to have sought clarification and if necessary directed that the verification be done as instructed. The burden of proof of admissibility of cenvat credit in respect of the goods and services by reflecting the requisite details in the appellant s records has been initially discharged by the appellant. Under the said circumstances the onus of proving that the goods have not been received and utilised as alleged in the show cause notice has then shifted to the Department. Hence in the absence of any allegation in the show cause notice or a finding by the learned adjudicating authority of the said goods having been diverted based on positive evidence of such diversion; and in the absence of any allegation in the show cause notice or a finding by the learned adjudicating authority that the goods manufactured and cleared as reflected in the ER1 returns have been produced utilizing inputs other than those accounted as received in the books of accounts of the appellant based on positive evidence of such receipt of other necessary inputs the said onus remains undischarged by the Department. The appellant is eligible to avail credit on the invoices that are addressed to unit I of the appellant which substantive benefit cannot be denied for the said procedural lapse and that the verification report submitted by the jurisdictional Divisional Assistant Commissioner sufficiently proves that the goods and services have been received and consumed in the factory of the appellant to the extent verified by him. Hence the burden to prove the admissibility of the cenvat credit in respect of such goods and services cast on the appellant in terms of Rule 9(5) and Rule 9(6) of the Cenvat Credit Rules 2004 stands sufficiently discharged. Extended period of limitation - Penalty - HELD THAT - The allegation relating to wilful mis-statement/suppression of facts with intent to evade payment of duty is not sustainable and consequently extended period is not invocable and mandatory penalty is also not liable to be imposed. Conclusion - Substantive benefits like CENVAT credit should not be denied due to procedural lapses if the substantive conditions are met. The extended period of limitation requires clear evidence of intent to evade duty. The demand made in the impugned order in original being untenable the demand of consequential interest and the penalty imposed also do not sustain - appeal allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal issues considered in this judgment are:

• Whether the appellant is eligible to avail CENVAT credit on invoices addressed to another unit, given the procedural discrepancies in the invoicing.
• Whether the extended period of limitation was rightly invoked by the Department for demanding the CENVAT credit availed by the appellant.
• Whether the imposition of penalty equivalent to the demand, based on alleged willful misstatement or suppression of facts, is justified.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Eligibility of CENVAT Credit

• Relevant legal framework and precedents: The CENVAT Credit Rules, 2004, specifically Rule 3(1) and Rule 9(1), govern the eligibility of CENVAT credit. The appellant relied on precedents that support the view that substantive benefits should not be denied due to procedural lapses.
• Court's interpretation and reasoning: The court noted that the adjudicating authority acknowledged the principle that procedural errors in invoices should not result in denial of CENVAT credit if the substantive conditions are met, such as receipt and utilization of goods.
• Key evidence and findings: The appellant provided evidence such as Goods Receipt Notes (GRNs) and other records. The jurisdictional Divisional Assistant Commissioner's verification report confirmed receipt and utilization of goods in the appellant's unit.
• Application of law to facts: The court held that the appellant had discharged the burden of proof by providing necessary documentation, and the verification report supported their claim. The procedural lapse of incorrect invoicing did not justify denial of credit.
• Treatment of competing arguments: The Department argued that the appellant failed to prove exclusive use of inputs in their unit. The court found this argument unpersuasive, given the verification report and lack of evidence of diversion.
• Conclusions: The court concluded that the appellant was eligible for CENVAT credit on the disputed invoices.

Issue 2: Invocation of Extended Period of Limitation

• Relevant legal framework and precedents: The Central Excise Act, 1944, and related precedents require suppression of facts or willful misstatement for invoking the extended limitation period.
• Court's interpretation and reasoning: The court emphasized the need for positive evidence of intent to evade duty to justify the extended period. It found the Department's reliance on procedural lapses insufficient for this purpose.
• Key evidence and findings: The appellant regularly filed ER-1 returns disclosing CENVAT credit details. The Department failed to scrutinize these returns adequately.
• Application of law to facts: The court determined that the appellant's disclosure in returns negated any claim of suppression or willful misstatement.
• Treatment of competing arguments: The Department argued that the appellant suppressed material facts. The court found no evidence supporting this claim.
• Conclusions: The court held that the extended period of limitation was not justifiably invoked.

Issue 3: Imposition of Penalty

• Relevant legal framework and precedents: Penalties under Rule 15(2) of the CENVAT Credit Rules, 2004, and Section 11AC of the Central Excise Act, 1944, require evidence of intent to evade duty.
• Court's interpretation and reasoning: The court found that the absence of evidence of willful misstatement or suppression negated the basis for penalty imposition.
• Key evidence and findings: The appellant's compliance with procedural requirements, such as filing returns, was noted.
• Application of law to facts: The court applied the principle that penalties require clear evidence of intent, which was lacking in this case.
• Treatment of competing arguments: The Department's argument for penalty was based on alleged intent to evade, which the court found unsubstantiated.
• Conclusions: The court concluded that the penalty was unjustified and set it aside.

3. SIGNIFICANT HOLDINGS

• Preserve verbatim quotes of crucial legal reasoning: "When there are any typographical errors in the invoices or any mistakes committed by the sellers in the preparation of the invoices, the substantive benefit should not be denied."
• Core principles established: Substantive benefits like CENVAT credit should not be denied due to procedural lapses if the substantive conditions are met. The extended period of limitation requires clear evidence of intent to evade duty.
• Final determinations on each issue: The appellant was entitled to the CENVAT credit claimed, the extended period of limitation was incorrectly invoked, and the penalty imposed was unjustified.

The judgment underscores the importance of distinguishing between procedural lapses and substantive non-compliance, emphasizing that procedural errors alone do not justify denial of statutory benefits or invocation of penalties without clear evidence of intent to evade duty.