2024 (9) TMI 1411 - AT - Central Excise

Confirmation of demand of incorrectly availed input cenvat credit, along with interest and penalty - time limitation - HELD THAT - There is no doubt that the market was not encouraging insofar as the new products claimed to have been launched by the appellant for which, its overseas partner provided financial assistance, which is termed by the Indian entity as reimbursement towards shortfall/compensation, etc. We are afraid the said claims of the Indian entity cannot decide the taxability or otherwise. Understandably, payment as in the case in hand, which may be in the nature of compensation, but is clearly towards keeping the Indian entity alive and kicking and to meet various expenditure including overheads. That therefore, is certainly not per se towards the clearance of a manufactured product and hence, there was no question of CENVAT credit being availed, just because the Indian entity chose to pay service tax. CENVAT credit, as governed by Rule 3 ibid is available to a manufacturer or the provider of taxable service of the input tax paid, which is used in the manufacture or provision of a taxable service, which is not the case here - the department is justified in holding that the credit has been wrongly availed, which therefore was required to be recovered as the same was not in accordance with law. Extended period of limitation - HELD THAT - The issue is required to be considered from a larger perspective, in the sense that they said claim was part of the statutory returns/periodical returns filed by the appellant which were picked up by the revenue and hence, there was no scope to invoke the larger period of limitation. Other than an assertion that during audit of the returns, the team picked up this issue itself suggests that there is nothing hidden/suppressed; and other than this, the revenue has not placed anything on record to support its above ground to justify its claim about suppression and the consequential invoking of the larger period of limitation. The Revenue has not at all established the fact of suppression for invoking the extended period of limitation for recovery of wrongly availed CENVAT credit. Hence, the impugned order does not sustain - the impugned order is set aside - appeal allowed.

Summary

Issues:
1. Whether the original authority was justified in confirming the demand of incorrectly availed input CENVAT credit, along with interest and penalty?
2. Whether the above demand is sustainable on the question of limitation?

Analysis:

Issue 1:
The Revenue contended that the importer did not receive any input service, leading to improper CENVAT credit availed. The appellant argued that they had mistakenly taken CENVAT credit of the service tax already paid. The tribunal noted that the Revenue must justify the extended period of limitation. The Original Authority cited the self-assessment system and audit as reasons for invoking the extended period. However, the appellant had availed credit of the service tax already paid, albeit erroneously. The tribunal found that the Revenue failed to establish suppression for invoking the extended period of limitation. Thus, the impugned order was set aside, and the appeal was allowed on the point of limitation.

Issue 2:
The Original Authority confirmed the demand alleging incorrect availment of input credit of the service tax, violating Rule 3 of CCR, 2004. The tribunal analyzed that the appellant, not being a manufacturer or provider of taxable services, might not be eligible for CENVAT credit as per Rule 3. Claiming CENVAT credit does not alter the nature of the transaction, and the availability of such credit needs to be ascertained first. The tribunal emphasized that the payment received from the overseas partner was not towards the clearance of manufactured products, making the availed credit incorrect. The Revenue's argument about suppression and invoking the extended period of limitation lacked substantial evidence, leading to the appeal being allowed based on the limitation issue alone.

This judgment highlights the importance of establishing the validity of CENVAT credit claims, the significance of the period of limitation in tax matters, and the necessity of concrete evidence to support claims of suppression.