2025 (1) TMI 423 - AT - Central Excise

CENVAT credit of additional duty of customs (SAD) availed by the Appellant can be demanded due to failure on the part of the Appellant to comply with Rule 3(5) of Cenvat Credit Rules, 2004 or not - suppression of facts or not - extended period of limitation. HELD THAT - The fact that the said items were imported inputs cleared 'as such' as established by the investigation by correlating the part number indicated in the invoices with those reflected in the Bills of Entry under which the said items were imported. Therefore, there has been a continuous attempt on the part of assessee to misrepresent and suppress the facts deliberately with the intention to avoid payment of the amount availed as CENVAT Credit at the time of 'as such' clearances. Thus, Appellant is liable to be imposed with penalty as held by the Adjudication authority. Extended period of limitation - HELD THAT - As per the finding in the impugned order, the Adjudication authority held that the facts regarding inputs cleared 'as such' was established by investigation. However as evident from the ER-1 return submitted by the Appellant and as per the invoices relied in the impugned order, Appellant had clearly mentioned in the invoice that the goods are cleared 'as such'. Facts being so, there is no reason to allege that the Appellant has suppressed the facts regarding removal of inputs 'as such' and it was not established by way of investigation by the Department. Hence, the impugned order is not tenable on limitation. Reversal of Cenvat credit on 'as such' clearances - HELD THAT - The case of the department is that they have not reversed the Cenvat credit taken of the SAD amounts, on their 'as such' clearances. However as per Rule 3(5) of Cenvat Credit Rules, 2004 when the goods are cleared as such they have to either reverse the Cenvat credit availed on such goods or pay duty equivalent to the Cenvat credit availed on such goods. In this case the appellant paid duty which was higher than the reversable Cenvat credit. Hence, there is no Revenue loss. Conclusion - i) There has been a continuous attempt on the part of assessee to misrepresent and suppress the facts deliberately with the intention to avoid payment of the amount availed as CENVAT Credit at the time of 'as such' clearances. Thus, Appellant is liable to be imposed with penalty as held by the Adjudication authority. ii) There is no reason to allege that the Appellant has suppressed the facts regarding removal of inputs 'as such' and it was not established by way of investigation by the Department. Hence, the impugned order is not tenable on limitation. iii) In this case the appellant paid duty which was higher than the reversable Cenvat credit. Hence, there is no Revenue loss. Appeal allowed.

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

Whether the CENVAT credit of additional duty of customs (Special Additional Duty - SAD) availed by the Appellant can be demanded due to non-compliance with Rule 3(5) of the CENVAT Credit Rules, 2004.
Whether the proceedings are barred by limitation due to the timing of the show cause notice.
Whether there was willful suppression or misstatement of facts by the Appellant.
Whether the duty paid by the Appellant on 'as such' clearances suffices as a reversal of CENVAT credit, including SAD.
Whether the penalties imposed on the Appellant and co-appellants are sustainable.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Compliance with Rule 3(5) of CENVAT Credit Rules, 2004

Relevant Legal Framework and Precedents: Rule 3(5) mandates that when inputs or capital goods on which CENVAT credit has been taken are removed 'as such', the manufacturer must pay an amount equal to the credit availed. The Appellant argued that they complied with this rule by paying excise duty on the selling price, which was higher than the credit availed.
Court's Interpretation and Reasoning: The Tribunal noted that the Appellant paid duty on transaction value, which was higher than the CENVAT credit to be reversed. Thus, there was no revenue loss, and the demand for reversal of SAD credit was unsustainable.
Key Evidence and Findings: The invoices and ER-1 returns indicated that the goods were cleared 'as such', and the duty paid was higher than the credit availed. The Tribunal found no evidence of non-compliance with Rule 3(5).
Application of Law to Facts: The Tribunal applied Rule 3(5) and concluded that the Appellant's actions were in compliance, as the duty paid exceeded the CENVAT credit availed.
Treatment of Competing Arguments: The Tribunal rejected the Respondent's argument that the Appellant failed to reverse SAD credit, noting the higher duty paid on transaction value.
Conclusions: The demand for reversal of SAD credit was not justified, as the Appellant complied with Rule 3(5) by paying higher duty.

Issue 2: Limitation and Suppression of Facts

Relevant Legal Framework and Precedents: The limitation period for issuing a show cause notice is one year from the relevant date, extendable to five years in cases of willful suppression or misstatement of facts.
Court's Interpretation and Reasoning: The Tribunal found no evidence of willful suppression or misstatement by the Appellant, as the ER-1 returns and invoices clearly indicated 'as such' clearances.
Key Evidence and Findings: The Tribunal noted the clear mention of 'as such' clearances in the Appellant's returns and invoices, refuting the allegation of suppression.
Application of Law to Facts: The Tribunal concluded that the proceedings were barred by limitation, as there was no justification for invoking the extended period.
Treatment of Competing Arguments: The Tribunal dismissed the Respondent's claim of suppression, finding it unsupported by evidence.
Conclusions: The proceedings were time-barred, and the invocation of the extended limitation period was unjustified.

Issue 3: Penalties on Appellant and Co-appellants

Relevant Legal Framework and Precedents: Penalties under Section 11AC of the Central Excise Act, 1994, and Rule 15 of CENVAT Credit Rules, 2004, require evidence of willful suppression or misstatement.
Court's Interpretation and Reasoning: The Tribunal found no basis for penalties, as there was no willful suppression or misstatement by the Appellant.
Key Evidence and Findings: The Tribunal noted the Appellant's compliance with duty payments and the absence of any intent to evade duty.
Application of Law to Facts: The Tribunal concluded that penalties were unwarranted due to the lack of evidence of willful misconduct.
Treatment of Competing Arguments: The Tribunal rejected the Respondent's justification for penalties, finding no evidence of intent to evade duty.
Conclusions: The penalties imposed on the Appellant and co-appellants were unsustainable and were set aside.

3. SIGNIFICANT HOLDINGS

Preserve Verbatim Quotes of Crucial Legal Reasoning: "We find that in this case the appellant paid duty which was higher than the reversable Cenvat credit. Hence, we find that there is no Revenue loss."
Core Principles Established: Compliance with Rule 3(5) can be achieved by paying duty on transaction value if it exceeds the CENVAT credit availed. The absence of willful suppression or misstatement negates the extended limitation period and penalties.
Final Determinations on Each Issue: The Tribunal set aside the demand for reversal of SAD credit, ruled the proceedings time-barred, and annulled the penalties imposed on the Appellant and co-appellants.

The Tribunal allowed the appeals with consequential relief, if any, as per law, emphasizing the importance of clear documentation and adherence to procedural requirements to avoid unwarranted demands and penalties.

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