2024 (10) TMI 1053 - AT - Central Excise

Cenvat Credit - invoices issued by Merchant Exporter M/s. Shri Dutt India Pvt. Ltd. in relation to services provided for fulfilment of Minimum Indicative Export Quota - invoices issued by the U.P. Sugar Mills Cogen Association for Contribution to install Gateway System' to ensure about the surplus power exported or imported by a unit over a period - interest - extended period of limitation. Admissibility of credit in respect of the contribution made by the appellant for installation of the gateway system - HELD THAT - The issue is squarely covered by the decision of Hon ble Supreme Court in case of Maruti Suzuki Limited 2009 (8) TMI 14 - SUPREME COURT wherein it was held that ' assessee was not entitled to CENVAT credit. In short, assessee is entitled to credit on the eligible inputs utilized in the generation of electricity to the extent to which they are using the produced electricity within their factory (for captive consumption). They are not entitled to CENVAT credit to the extent of the excess electricity cleared at the contractual rates in favour of joint ventures, vendors etc., which is sold at a price.' - In light of the claim made by the appellant that they are reversing the credit on proportionate basis in respect of electricity wheeled out by them there are no merits in the impugned order to the extent it is in respect of denial of credit on this account. CENVAT credit in respect of service received from the merchant exporter - HELD THAT - The findings recorded in the impugned order are agreed to the effect that these services had no relationship howsoever negligible with manufacturing activities undertaken by the appellant - the impugned order that the definition of input service was amended in 2011 to delete activities relating to business from the inclusive part of definition. Thus the definition has become more restrictive than what was interpreted by the Hon ble High Court. As no sort of nexus can be shown between the services received by the appellant from the Merchant Exporter, for fulfillment of export quota, by procuring and exporting the sugar of other manufacturers there are no merits in the contentions raised by the appellant on the ground of admissibility of this credit. These activities are more akin to trading of goods for export as have been held by the impugned order. Extended period of limitation - HELD THAT - The bonafide belief pleaded by the appellant need to be established and cannot be said to exist in isolation. The fact that appellant has been availing the CENVAT Credit against the invoices of the Merchant Exporter was never disclosed to the department, nor the tripartite agreement dated 16.12.2015 between the appellant, Merchant Exporter and M/s Shayadri SSK Ltd., Yeshwantnagar, Distt Satara, Maharashtra was ever disclosed - the fact that appellant has taken credit against the invoices of Merchant Exporter in respect of invoices which were in respect of services which were in no way related to the manufacturing activities of the appellant was never disclosed to the department and suppressed from the departmental authorities at the time of filing the return. It has been held that the discovery of certain facts during the course of audit which are not available on the returns is an act of suppression for invoking the extended period of limitation - the extended period has been correctly invoked the penalty imposed under Rule 15 of CENVAT Credit Rules, 2004 read with Section 78 of Finance Act, 1994 and Section 11AC of the Central Excise Act, 1944 to the extent it is in respect of this demand cannot be faulted with. Interest - HELD THAT - As the demand in respect of wrongly availed CENVAT Credit against the invoices of Merchant Exporters is upheld the demand of interest follows and cannot be faulted with. Appeal allowed in part.

Summary

Issues Involved:
1. Admissibility of CENVAT Credit on services provided by Merchant Exporter for export facilitation.
2. Admissibility of CENVAT Credit on services related to the installation of the Gateway System by U.P. Sugar Mills Cogen Association.
3. Invocation of the extended period of limitation.
4. Imposition of penalty under Rule 15 of CENVAT Credit Rules, 2004 read with Section 78 of the Finance Act, 1994.

Issue-wise Detailed Analysis:

1. Admissibility of CENVAT Credit on Merchant Exporter Services:
The primary issue was whether the appellant could avail CENVAT Credit on services provided by a Merchant Exporter for fulfilling the Minimum Indicative Export Quota (MIEQ) of sugar. The appellant argued that the export facilitation fee and reimbursement of loss were closely related to business activities and eligible for CENVAT Credit. However, the tribunal found that these services were more akin to trading activities, which fall under the negative list under Section 66(D)(e) of the Finance Act, 1994, and thus, not eligible for CENVAT Credit. The tribunal upheld the findings of the lower authorities, emphasizing that the services provided by the Merchant Exporter did not relate to the manufacture of the appellant's final products.

2. Admissibility of CENVAT Credit on Gateway System Installation:
The appellant also claimed CENVAT Credit for contributions made towards the installation of a Gateway System by the U.P. Sugar Mills Cogen Association. The tribunal referred to the Supreme Court's decision in Maruti Suzuki Limited, which clarified that credit is not available for inputs used in the generation of electricity that is wheeled out for a price. Since the Gateway System was related to monitoring electricity, an exempted good/service, the tribunal found no merit in denying credit on this account, and thus, set aside the demand, interest, and penalty related to this issue.

3. Invocation of Extended Period of Limitation:
The tribunal examined whether the extended period of limitation was rightly invoked. It was found that the appellant had not disclosed crucial information, such as the tripartite agreement with the Merchant Exporter, to the department. This non-disclosure was deemed suppression of facts, justifying the invocation of the extended period. The tribunal cited several precedents, including Lally Automobiles and Kuttukaran Trading Ventures, to support the invocation of the extended period due to suppression of facts.

4. Imposition of Penalty:
The tribunal upheld the imposition of penalties under Rule 15 of the CENVAT Credit Rules, 2004, read with Section 78 of the Finance Act, 1994, for the demand related to Merchant Exporter services. It cited the Supreme Court's decision in Rajasthan Spinning and Weaving Mills, emphasizing that penalties are warranted for deliberate deception with the intent to evade duty. The penalty was considered justified due to the appellant's suppression of facts and wrongful availing of CENVAT Credit.

Conclusion:
The appeal was partly allowed. The tribunal set aside the demand, interest, and penalty related to the Gateway System services but upheld the demand, interest, and penalty concerning the services provided by the Merchant Exporter. The decision reflects a strict interpretation of the eligibility criteria for CENVAT Credit and underscores the importance of full disclosure to tax authorities to avoid penalties and extended limitation periods.