2025 (2) TMI 7 - AT - Central Excise

CENVAT Credit - disallowance of credit towards transportation and difference in the amount received from the insurance company - credit on labour cost - time limitation - Penalty imposed under section 11AC of the Act. Credit towards transportation and difference in the amount received from the insurance company - HELD THAT - There is no reason to interfere with the findings that the ingredients to avail credit of duty of goods brought back to the factory as contemplated under Rule 16(1) were not satisfied. The appellant having wrongly availed the benefit of the credit on the service tax paid on transportation charges is liable to reverse the said amount along with interest. The loss due to damaged goods was valued at Rs. 4, 83, 825/- and against the same appellant received the insurance claim of Rs. 5, 60, 555/- however they reversed the credit on the amount of Rs. 4, 83, 825/- and failed to reverse the balance amount of credit of Rs. 11, 793/- on the differential amount of Rs. 76, 730/-. Therefore the appellant was liable to reverse the credit of Rs. 11, 793/- wrongly retained by them. In fact the appellant had agreed and actually paid the Cenvat credit of Rs. 3, 067/- along with interest and penalty but failed to pay the balance amount of Rs.8, 726/-. There seems to be no error in the demand raised and confirmed in this regard. Reversal of the Cenvat credit in respect of labour cost - HELD THAT - The appellant in their synopsis had submitted that they received a sum of Rs. 5, 60, 555/- towards the insurance claim which consisted cost of material of Rs. 4, 83, 825/- and the cost of labour of Rs. 1, 56, 717/-. From their own submissions it is apparent that the amount received from the insurance company included the cost of labour and consequently they were required to reverse the same. Time limitation - HELD THAT - The allegation of wilful suppression to evade payment of duty has been made out and therefore the invocation of the extended period of limitation is justified in the facts of the present case. Penalty imposed under section 11AC of the Act - HELD THAT - The penalty imposed under section 11AC of the Act on account of suppression of facts so as to evade duty liability is mandatory and there is no reason to interfere with the same - The action/inaction on the part of the assessee points to the intent to evade duty and the same is writ large in the present case as though ER-1 Returns were filed by the appellant however the fact of availing the Cenvat credit on transportation charges was missing deliberately as the appellant knew that the activity carried out by them and did not amount to manufacture which is further evident by not availing the Cenvat credit in terms of Rule 16(1). Conclusion - i) The appellant having wrongly availed the benefit of the credit on the service tax paid on transportation charges is liable to reverse the said amount along with interest. ii) The amount received from the insurance company included the cost of labour and consequently they were required to reverse the same. iii) The allegation of wilful suppression to evade payment of duty has been made out and therefore the invocation of the extended period of limitation is justified in the facts of the present case. iv) The penalty imposed under section 11AC of the Act on account of suppression of facts so as to evade duty liability the same is upheld. Appeal allowed in part.

The judgment concerns an appeal by M/s Force Motors Ltd. challenging the disallowance of Cenvat Credit related to transportation charges and insurance claims. The appeal was heard by the Appellate Tribunal CESTAT New Delhi, which considered several issues relating to the reversal of Cenvat Credit under the Cenvat Credit Rules, 2004 and the Central Excise Rules, 2002.

Issues Presented and Considered

The core issues considered in this judgment include:

Whether the appellant was entitled to avail Cenvat Credit on transportation charges for goods returned to the factory under Rule 16 of the Central Excise Rules, 2002.
Whether the appellant was required to reverse the Cenvat Credit on the differential amount received from the insurance claim for damaged goods.
The applicability of the extended period of limitation for the demand raised by the authorities.
Whether the penalty imposed under Section 11AC of the Central Excise Act was justified.

Issue-Wise Detailed Analysis

1. Cenvat Credit on Transportation Charges

Legal Framework and Precedents: Rule 16 of the Central Excise Rules, 2002 allows for Cenvat Credit on goods brought back to the factory for re-making, refining, or reconditioning. The relevant provisions of the Cenvat Credit Rules, 2004, particularly Rule 2(l), define 'input service' and its applicability.
Court's Interpretation and Reasoning: The Tribunal found that the appellant's activity did not amount to manufacture as per Rule 16, and therefore, the provisions allowing Cenvat Credit on transportation charges were not applicable.
Application of Law to Facts: The Tribunal concluded that the appellant was not entitled to the credit of duty for goods brought back to the factory under Rule 16 read with Rule 2(l) of the Cenvat Credit Rules, 2004, as the activity did not qualify as manufacturing.
Conclusion: The appellant was not entitled to avail Cenvat Credit on the transportation charges, and the reversal of credit was justified.

2. Reversal of Cenvat Credit on Insurance Claim

Key Evidence and Findings: The appellant received an insurance claim exceeding the value of the damaged goods and failed to reverse the Cenvat Credit on the differential amount.
Application of Law to Facts: The Tribunal found no error in the demand for reversing the credit of Rs. 11,793/- on the differential amount, as the appellant had already agreed to and partially paid the required amount.
Conclusion: The appellant was liable to reverse the credit on the differential amount received from the insurance claim.

3. Limitation and Penalty

Legal Framework: The extended period of limitation and penalty under Section 11AC of the Central Excise Act were considered.
Court's Interpretation and Reasoning: The Tribunal agreed with the appellant's contention that the demand for the period June 2016 to July 2016 was time-barred. However, it upheld the invocation of the extended period for other demands due to the appellant's failure to disclose material facts.
Competing Arguments: The appellant argued against the penalty, citing the absence of mens rea. However, the Tribunal found sufficient evidence of intent to evade duty.
Conclusion: The penalty was upheld, but the demand for the time-barred period was set aside.

Significant Holdings

Core Principles Established: The Tribunal reaffirmed that Cenvat Credit is not available for activities not amounting to manufacture under Rule 16. It also emphasized the importance of full disclosure to avoid the invocation of the extended period of limitation.
Final Determinations: The Tribunal partly allowed the appeal by setting aside the demand for the period June 2016 to July 2016 as time-barred but upheld the rest of the order, including the reversal of Cenvat Credit and the penalty imposed.

The judgment underscores the stringent application of Cenvat Credit provisions and the necessity for assessees to maintain transparency in their disclosures to avoid penalties and extended limitations.

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