2024 (6) TMI 494 - AT - Central Excise

Recovery of Central Excise duty with interest and penalty - distribution of credit of tax paid on royalty charge - time period for issuance of issuance of SCN - HELD THAT - It is seen that the notice covers the period after December 2007 in addition to a few months prior to extend to all credit taken on tax paid on royalties for five years till issue of notice that there is no justification offered for inclusion of the period after December 2007 in the notice till the normal period of limitation commences as relevant date in terms of section 11A of Central Excise Act, 1944. Consequently, save for credit assigned to Unit I during the normal period of limitation of one year computed in accordance with show cause notice dated 3rd August 2012, and credit assigned between August 2011 and December 2011 the proceedings stand barred by limitation. Thus the scope of disputation is, this, restricted. The submissions of the noticee that procedural infirmities should not stand in the way of substantive entitlement and that the law, as it stood then, did not envisage proportional distribution of credit were not dealt with in the impugned order. It would also appear that decisions supporting these propositions now produced before us had also not been placed before the adjudicating authority. It would, therefore, be appropriate for a the legality of the proposals in the notice to be decided afresh and limited to the period validated by section 11A of Central Excise Act, 1944 - the impugned order is set aside - matter remitted back to the original authority to be adjudicated afresh after hearing the assessee on their submissions. Appeal is allowed by way of remand.

Issues Involved:
1. Assignment of tax credit to one unit.
2. Eligibility of CENVAT credit on 'royalty' charges.
3. Registration as 'input service distributor'.
4. Inclusion of 'trading' turnover in credit computation.
5. Limitation period for issuing show cause notice.
6. Procedural compliance for availing CENVAT credit.

Summary:

1. Assignment of Tax Credit to One Unit:
The appellant, M/s Frank Faber India Ltd, was proceeded against for assigning the tax paid u/s 66A of Finance Act, 1994 on 'royalty' paid to an overseas entity for 2007-08 to 2011-12 entirely to Unit I. The recovery of Rs. 2,07,07,784 u/s 11A of Central Excise Act, 1944, along with interest u/s 11AA and penalty u/s 11AC, was sought despite the sales of manufactured goods and traded goods being only a portion of the total turnover for which liability had been discharged.

2. Eligibility of CENVAT Credit on 'Royalty' Charges:
The appellant was contractually bound to pay royalty to M/s Niro-Plan AG Switzerland and assigned the credit of tax discharged to only one manufacturing facility. The audit revealed that the entire credit was taken by Unit I, which contributed only 34.80% of total sales. The appellant argued that the tax liability should not have been discharged separately by each unit and that the notice for extended period was not justified.

3. Registration as 'Input Service Distributor':
The appellant did not obtain registration as 'input service distributor' as required. The tax was paid as a deemed recipient u/s 66A of Finance Act, 1994. The notice covered the period from 2007-08 to 2011-12, proposing recovery and penalty. The confirmation of demands and penalty by the Commissioner of Central Excise & Customs, Pune-III was challenged.

4. Inclusion of 'Trading' Turnover in Credit Computation:
The contention that 'trading' turnover should be excluded from the computation of credit availed by Unit I implies that eligibility to some credit is not indefensible. The dispute was over the numbers, and there is no provision in rule 3 of CENVAT Credit Rules, 2004 for restricting quantum of credit once eligibility of 'input service' is not in dispute.

5. Limitation Period for Issuing Show Cause Notice:
The notice included the period after December 2007, extending to all credit taken on tax paid on 'royalties' for five years till the issue of notice. The proceedings were barred by limitation except for the normal period of one year and the credit assigned between August 2011 and December 2011.

6. Procedural Compliance for Availing CENVAT Credit:
The principal objection was the failure to obtain registration as 'input service distributor' and filing of returns as prescribed. The submissions that procedural infirmities should not stand in the way of substantive entitlement were not dealt with in the impugned order. The legality of the proposals in the notice needs to be decided afresh.

Conclusion:
The impugned order was set aside, and the matter was remitted back to the original authority for fresh adjudication limited to the period validated by section 11A of Central Excise Act, 1944. The appeal was allowed by way of remand to the extent set out in the order.

(Order pronounced in the open court on 11/06/2024)

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