2024 (12) TMI 837 - HC - Central Excise

Maintainability of appeal - appropriate forum - rectification of mistake - Reversal of CENVAT Credit - reversal was in the form of debit in the Cenvat register, at the time of issuing the sales invoice - excise duty was paid on receipt from the buyer and not through Cenvat Credit - validity of equating the Cenvat Credit reversal with utilization - absence of prescribed method for reversal of Cenvat Credit - levy of equal penalty by the non-speaking and without reasons order - validity of recovering CENVAT Credit availed on inputs despite there being a reversal of the entire availed CENVAT Credit and no loss being suffered by the exchequer - time limitation. Whether in the facts and circumstances of the case and in law, the demand of Rs. 5,63,66,047/- raised by the Commissioner of Central Excise, Thane-II vide the Show Cause Notice dated 5th September 2014 for the period August 2009 to September 2012 is barred by limitation? - HELD THAT - For the question to be raised in an appeal to the High Court under Section 35G, the same should arise out of the Tribunal s order against which an appeal is preferred to the High Court. Section 35G (1) provides that an appeal shall lie from every order passed in appeal by the Appellate Tribunal. Therefore, the issue dealing with notice being barred by limitation should arise from the Tribunal's order. On a perusal of the Tribunal's order, the issue of notice being barred by limitation does not appear to have been raised by the Appellant since there is no such recording by the Tribunal in the order. This issue, in the facts of the case, is a mixed issue of fact and law. Since the issue of a notice being barred by limitation has not been argued in the view of the absence of the same being recorded in the Tribunal s order, the question would not arise from the Tribunal s order. In-ground (h) of the appeal memo before this Court it is stated that ground relating to limitation was raised in the appeal before the Tribunal. However, the Tribunal has failed to consider the same and, therefore, the Tribunal s order suffers from infirmities. In our view, raising ground in the appeal and advancing arguments at the time of the hearing before the Tribunal are two different things - In the instant case, it is informed that the Appellant has not filed any such application before the Tribunal. Such a ground cannot be entertained because it is not aware as to whether the ground of limitation was argued before the Tribunal or not. The Tribunal s record must be given credence. The appeal Court does not lightly entertain any attacks against the Court s record. The proper mode is approaching the same court within a reasonable period, if not at the earliest. Even ground (h) only speaks that same was raised in the appeal, but it does not say that it was argued before the Tribunal. Admittedly, there is no discussion on the ground of limitation in the Tribunal s order and, therefore, since the issue of limitation does not arise from the present Tribunal s order dated 27 February 2024, same is to be rejected. The Co-ordinate Bench of this Court in Commissioner of Income Tax vs. Tata Chemicals Ltd. 2002 (4) TMI 42 - BOMBAY HIGH COURT while dealing with Section 260A of the Income Tax Act on appeals to the High Court holding that ' The careful reading of section will show that High Court can decide only that question which was raised but not determined by the Tribunal. Therefore it was necessary that the question sought to be raised ought to have been raised before the Tribunal and then if it had not determined it, one can say that it has not been determined by Tribunal and therefore the High Court should look into it. In the present case, we do not find that this issue had been raised before the Tribunal. It is also not the case of revenue that the issue or question was raised but not decided by the Tribunal. In the circumstances, we do not propose to dwell on this question.' Cenvat Credit of Rs. 5,63,66,047/- that was wrongly availed and ordered to be recovered - HELD THAT - The modus operandi concerning the issue above has been narrated in paragraph 3 of the present order, wherein it is observed that the Appellant used to clear the imported goods directly from the customs bonded warehouse and send them to its customers. Still, the records were maintained in such a manner that they reflect that the goods entered the Appellant's factory premises and left the factory premises for the customer's destination. Based on the excise invoices raised by the Appellant, the customers used to take Cenvat credit. There is no dispute that unless the goods enter the factory premises and leave the factory premises, Cenvat Credit cannot be taken. In the show cause notice dated 5 September 2014, it is stated that the Appellant availed inadmissible Cenvat Credit and also wrongly passed the incidence of duty to various customers. The show cause notice records statements made by various customers of the Appellant in support of this modus operandi - On a specific question being asked to the customers as to how they had taken Cenvat Credit when the goods were not being transported from the factory premises, they have categorically stated that the Cenvat Credit was taken based on invoices issued by the Appellant. The Appellant has rebutted none of these statements of the customers. In the statements recorded of the representatives of the Appellant they have also admitted to the said modus operandi adopted by them which has not been rebutted. The Tribunal, being final fact-finding authority, has given a finding of fact that the Appellant has availed inadmissible Cenvat Credit although the goods did not enter the factory. It further records that the inadmissible Cenvat Credit was availed, utilised, and not reversed - The Tribunal has observed that the customers to whom goods were sold have admitted that based on such documents prepared, they availed the Cenvat Credit, although the same could not have been availed. Two authorities have examined the facts and have given a finding of fact that the same Cenvat Credit was wrongly availed and passed on to the customer, and this has not been rebutted. These findings of facts and, more particularly, by the final factfinding authority cannot be challenged by saying that there arises substantial questions of law. The original authority and the Tribunal have recorded that the Appellant has admitted the modus operandi referred to hereinabove and the same is corroborated by the customers' statements also. Such findings of facts would not raise any question of law much less substantial questions of law - Since admittedly, the modus operandi was proved to avail wrongly the Cenvat Credit and passed on to the customers and further there is no denial that the customers have availed the Cenvat Credit based on the documents prepared by the Appellant, which otherwise they have not been able to avail, these are questions of facts, and on such questions of facts, no substantial questions of law can be said to arise. Therefore, even after considering the chart, no interference with the factual findings is warranted. The basis of confirming the penalty is in paragraph 5 wherein the modus operandi of the Appellant for availing and passing on Cenvat Credit to its customers which was exposed by the investigation team and confirmed by the adjudicating officer also got reconfirmation by the Tribunal. The fact that invocation of larger period of limitation on account of suppression, fraud etc. has become final since said ground not having been argued as per the Tribunal s order which does not mention so, there does not seem to be any infirmity in Tribunal s order on confirming penalty. The appeal filed by the Appellant against the order of the Tribunal dated 27 February 2024 does not raise any substantial questions of law, and, therefore, the appeal is dismissed.

Summary

Issues Involved:

1. Reversal of Cenvat Credit and its implications.
2. Equating Cenvat Credit reversal with utilization.
3. Methodology for reversal of Cenvat Credit.
4. Legitimacy of penalty imposition and extended period of limitation.
5. Justification of punitive actions by excise authorities.
6. Demand for recovery of CENVAT Credit and its limitation period.

Issue-wise Detailed Analysis:

1. Reversal of Cenvat Credit and its Implications:

The primary issue was whether the Tribunal erred in holding that there was no reversal of Cenvat Credit merely because the reversal was in the form of a debit in the Cenvat register at the time of issuing the sales invoice. The court examined the modus operandi of the appellant, who cleared imported goods directly from customs bonded warehouses to customers while maintaining records indicating that these goods entered and left the factory premises. The Tribunal and the Commissioner found that the appellant availed inadmissible Cenvat Credit and passed it on to customers, which was not rebutted by the appellant. The reversal of credit, though claimed, was not substantiated, as the credit was utilized and passed on to customers, leading to the conclusion that the reversal was ineffective.

2. Equating Cenvat Credit Reversal with Utilization:

The court addressed whether the Tribunal erred in equating the reversal of Cenvat Credit with its utilization. The Tribunal found that the appellant availed and utilized inadmissible Cenvat Credit, which was not reversed. This utilization was evidenced by the invoices issued for sales directly from the customs bonded warehouse, which allowed customers to take Cenvat Credit improperly. The court upheld the Tribunal's findings, emphasizing that the appellant's actions constituted utilization rather than mere reversal.

3. Methodology for Reversal of Cenvat Credit:

The appellant contended that in the absence of a prescribed method for reversal, the method they adopted should be accepted. However, the Tribunal rejected this argument, noting that the appellant's method involved issuing documents indicating factory clearance, which was misleading and facilitated improper credit utilization by customers. The court supported the Tribunal's decision, finding no merit in the appellant's methodology.

4. Legitimacy of Penalty Imposition and Extended Period of Limitation:

The court examined whether the penalty was imposed mechanically without reason and whether the extended period of limitation was justified. The Tribunal confirmed the penalty, citing the appellant's intentional wrongful availing and passing on of Cenvat Credit. The court noted that the issue of limitation was not argued before the Tribunal, and thus, it did not arise from the Tribunal's order. Consequently, the penalty and the invocation of the extended period of limitation were upheld as justified.

5. Justification of Punitive Actions by Excise Authorities:

The appellant argued against the punitive actions of the excise authorities, claiming no loss to the exchequer due to credit reversal. However, the court found that the appellant's actions led to the wrongful passing of credit to customers, which justified the authorities' actions. The Tribunal's findings of intentional wrongdoing by the appellant were upheld, and the punitive measures were deemed permissible.

6. Demand for Recovery of CENVAT Credit and its Limitation Period:

The court addressed whether the demand for recovery of CENVAT Credit was barred by limitation. The Tribunal's order did not record any argument on limitation, and the appellant did not file for rectification of the Tribunal's order. The court emphasized that issues not raised or argued before the Tribunal could not be entertained in appeal. As such, the demand for recovery was not barred by limitation, and the Tribunal's order on this issue was upheld.

In conclusion, the court dismissed the appeal, finding no substantial questions of law arising from the Tribunal's order. The findings of fact by the Commissioner and the Tribunal, supported by evidence, were deemed conclusive, and the appeal was dismissed with no order as to costs.