2025 (1) TMI 338 - AT - Central Excise

Cenvat Credit in respect of the rejected finished goods received back from the buyer - invocation of extended period of limitation - Suppression of facts or not - HELD THAT - Though the appellant has recorded the factum of return of the defective goods in their RG 23A Part-I alongwith the relevant invoices and subsequent issuance of the production area for manufacture of finished products but has not been able to establish that the same were cleared on payment of duty. Further, the appellant has also not strictly followed the procedure as prescribed in Rule 16 of Central Excise Rules, 2002. In the absence of clear proof of payment of duty after re-processing of defective goods, it will be difficult for me to give a concrete finding on the said issue; but as far as extended period of limitation is concerned, the appellant has shown the defective goods returned in RG 23A Part-I and has been regularly filing monthly returns before the department and the department has not raised any objection and only during the course of audit conducted by AG Audit (H.P.) during 06.09.2003 to 29.10.2003 it has been pointed out that the appellant has wrongly taken the Cenvat Credit; and thereafter the show cause notice was issued purely on the basis of audit objection which is unsustainable. The appellant has been regularly filing monthly ER-1 returns for the period in dispute declaring the Cenvat Credit admissible to them and therefore, the appellant cannot be accused of suppression of relevant facts when there are series of instructions issued by the CBIC board directing the field officers to scrutinize the ER-1 returns carefully. When the audit was conducted in year 2003, the entire information was within the knowledge of the department from the date of conclusion of the audit, but in spite of that, the show cause notice was issued after a gap of three years without any further investigation conducted by the department from the date of conclusion of audit. It has been consistently held by various Courts that when the relevant facts are within the knowledge of the department, the extended period for raising the demand cannot be applied. Conclusion - The show-cause notice was issued purely on the basis of audit objections without the necessary investigation which must precede action under Section 11A of the Act. The demands based solely on audit objections without further investigation are unsustainable and that extended periods cannot be applied when facts are known to the department. The appeal of the appellant allowed on limitation alone by setting aside the impugned order.

2016 (8) TMI 1113 - AT

1. ISSUES PRESENTED and CONSIDERED

The legal judgment addresses the following core issues:

Whether the appellant was entitled to avail Cenvat Credit on the rejected goods received back for re-processing under the Cenvat Credit Rules, 2002.
Whether the extended period of limitation was rightly invoked under Rule 12 of the Cenvat Credit Rules, 2002 read with Section 11A of the Central Excise Act, 1944.
Whether the demand raised by the department was barred by limitation.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Entitlement to Avail Cenvat Credit

Relevant legal framework and precedents: The Cenvat Credit Rules, 2002 allow manufacturers to avail credit on inputs used in manufacturing. The appellant relied on precedents such as Balmer Lawrie & Co. Ltd vs. CCE, Mumbai and others to support their claim.
Court's interpretation and reasoning: The court noted that the appellant recorded the return of defective goods in RG 23A Part-I and issued them to the production area but failed to establish that these goods were cleared on payment of duty.
Key evidence and findings: The appellant provided invoices and RG 23A Part-I entries but lacked proof of duty payment after re-processing.
Application of law to facts: The court found the appellant did not strictly follow Rule 16 of the Central Excise Rules, 2002, which complicated establishing entitlement to Cenvat Credit.
Treatment of competing arguments: The appellant argued for credit entitlement based on recorded returns and precedents, while the department contested the lack of duty payment proof.
Conclusions: The court did not make a concrete finding on credit entitlement due to insufficient evidence of duty payment.

Issue 2: Invocation of Extended Period of Limitation

Relevant legal framework and precedents: Rule 12 of the Cenvat Credit Rules, 2002 and Section 11A of the Central Excise Act, 1944 govern the limitation period for raising demands. The appellant cited cases like Kirloskar Pneumatic Co. Ltd vs. CCE, Pune-III to argue against the extended period.
Court's interpretation and reasoning: The court emphasized that the department had knowledge of the appellant's practices from audit findings and failed to act within the standard limitation period.
Key evidence and findings: The appellant consistently filed ER-1 returns, and the department's action was based solely on audit objections without further investigation.
Application of law to facts: The court found the department's reliance on audit objections without subsequent investigation insufficient to justify the extended period.
Treatment of competing arguments: The department argued for the extended period based on alleged suppression of facts, while the appellant highlighted regular return filings and departmental awareness.
Conclusions: The court concluded that the extended period was improperly invoked, rendering the demand time-barred.

Issue 3: Demand Barred by Limitation

Relevant legal framework and precedents: The limitation provisions under Rule 12 and Section 11A, with precedents like Modipon Fibre Co. vs. CCE, Meerut, were considered.
Court's interpretation and reasoning: The court held that the department's delay in issuing the show cause notice, despite having knowledge from audit, barred the demand by limitation.
Key evidence and findings: The court noted the lack of departmental action post-audit and consistent return filings by the appellant.
Application of law to facts: The court applied the principle that the extended period cannot be invoked when facts are within departmental knowledge.
Treatment of competing arguments: The appellant's argument on limitation was favored over the department's claim of suppression.
Conclusions: The court allowed the appeal based on the limitation issue, setting aside the demand.

3. SIGNIFICANT HOLDINGS

Preserve verbatim quotes of crucial legal reasoning: The court stated, "the show-cause notice was issued purely on the basis of audit objections without the necessary investigation which must precede action under Section 11A of the Act."
Core principles established: The judgment reinforced that demands based solely on audit objections without further investigation are unsustainable and that extended periods cannot be applied when facts are known to the department.
Final determinations on each issue: The court did not conclusively determine credit entitlement due to lack of evidence but ruled the demand time-barred due to improper invocation of the extended period.

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