2025 (3) TMI 429 - AT - Central Excise

Reversal of CENVAT Credit - Inclusion of CENVAT credit availed on the Interface while calculating the proportionate credit to be reversed under Rule 6(3A) of the CENVAT Credit Rules 2004 - applicability of Rule 16 of the Central Excise Rules or Rule 6 of CENVAT Credit Rules? - Invocation of extended period of limitation - penalties - HELD THAT - If Rule 16 of the CENVAT Credit Rules 2004 provides for availing credit on goods brought into the factory for whatever purpose it should be interpreted in a constricting manner without expanding the purposes for which a deeming fiction has been brought in. It is found that wherever legislature intended to make the deeming fiction applicable to the entirety of Rules the same is provided by the Rule itself. The submissions of the learned Counsel for the appellants agreed upon that such an inclusive deeming fiction has been incorporated under Section 66A of the Finance Act 1994. It is found that in the impugned case Rule 16 does not provide such applicability to the other Rules of CENVAT Credit Rules. It can be seen that Rule 16 brings in one such deeming fiction to cater the exigencies of the manufacturers who are likely to receive back final products for repair re-conditioning etc. As the duty on the same has been discharged legislature in their wisdom has permitted availment of CENVAT credit on the same. For this reason the goods cannot be equated to be inputs for the purpose of Rule 3 of CENVAT Credit Rules as they were never been inputs - the findings of the impugned order are not sustainable on this count. The appellant has correctly not included the amount of CENVAT credit in the value of inputs for the purpose of reversal of CENVAT credit in terms of Rule 6(3A) in respect of exempted and dutiable goods manufactured by them. Invocation of extended period of limitation - penalties - HELD THAT - Department has not made out any case for invocation of extended period. Moreover it is seen that extended period have been invoked in the subsequent show cause notices also in contravention of the Hon ble Supreme Court s decision in the case of Nizam Sugar Factory Ltd. 2006 (4) TMI 127 - SUPREME COURT it is found that extended period cannot be invoked in the subsequent show cause notices. Further as the appellants being subjected to audits from time to time and keeping in view that the appellants are a Public Sector Undertaking it is found that invocation of extended period is neither warranted not substantiated. In the result the impugned orders cannot be sustained both on merits and limitation. Therefore they are liable to be set aside. Conclusion - The appellants correctly excluded the Interface from the reversal calculation under Rule 6(3A). ii) The extended period for show cause notices was unjustified. Appeal allowed.

Summary

ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment include:

• Whether the Interface qualifies as an input under Rule 2(k) of the CENVAT Credit Rules, and if Rule 6 of the CENVAT Credit Rules applies to the Interface for the purposes of CENVAT credit reversal.
• Whether Rule 16 of the Central Excise Rules, which allows for the availment of CENVAT credit on goods brought to the factory for refining or reconditioning, applies to the Interface.
• Whether the extended period for issuing show cause notices is applicable given the circumstances and the appellant's status as a Public Sector Undertaking.

ISSUE-WISE DETAILED ANALYSIS

1. Applicability of Rule 6 and Rule 16 to the Interface:

• Relevant legal framework and precedents: Rule 16 of the Central Excise Rules allows for CENVAT credit on goods brought into a factory for reconditioning, refining, etc., by creating a deeming fiction. Rule 6 of the CENVAT Credit Rules restricts credit on inputs used in exempted goods. The Supreme Court's interpretation of deeming fictions in cases like Mancheri Puthusseri Ahmed and Imagic Creative Pvt. Ltd. emphasizes that such fictions should be strictly construed.
• Court's interpretation and reasoning: The Tribunal found that Rule 16 creates a deeming fiction specifically for goods brought into a factory for reconditioning, not for treating such goods as inputs under Rule 6. The fiction should not be extended beyond its intended purpose.
• Key evidence and findings: The Tribunal noted that the Interface is used in the process of refining and thus falls under the purview of Rule 16, not Rule 6. The Trade Notice issued by the Commissionerate also supported this interpretation.
• Application of law to facts: The Tribunal concluded that the Interface should not be treated as an input under Rule 6, and thus the reversal of CENVAT credit as per Rule 6(3A) is not applicable.
• Treatment of competing arguments: The Tribunal agreed with the appellant's argument that the Interface does not qualify as an input under Rule 6 and that Rule 16's deeming fiction should not be extended to apply to Rule 6.
• Conclusions: The Tribunal concluded that the appellant correctly excluded the Interface from the calculation of CENVAT credit reversal under Rule 6(3A).

2. Invocation of the extended period for show cause notices:

• Relevant legal framework and precedents: The extended period for issuing show cause notices is typically invoked in cases of suppression of facts or intent to evade duty, as per the Supreme Court's decision in Nizam Sugar Factory.
• Court's interpretation and reasoning: The Tribunal found no evidence of suppression or intent to evade duty by the appellant, who is a Public Sector Undertaking subject to regular audits.
• Key evidence and findings: The Tribunal noted that the Department failed to provide evidence of any positive act by the appellant to justify the invocation of the extended period.
• Application of law to facts: The Tribunal determined that the extended period was inappropriately invoked in the show cause notices, particularly given the appellant's status and the lack of evidence of wrongdoing.
• Treatment of competing arguments: The Tribunal rejected the Department's argument for invoking the extended period, citing the appellant's transparency and regular audits.
• Conclusions: The Tribunal concluded that the extended period could not be invoked, and the show cause notices were unsustainable on this basis.

SIGNIFICANT HOLDINGS

• The Tribunal held that Rule 16 of the Central Excise Rules allows for the availment of CENVAT credit on goods brought into the factory for reconditioning, refining, etc., and this does not extend to treating such goods as inputs under Rule 6 of the CENVAT Credit Rules.
• The Tribunal emphasized the principle that a deeming fiction should be strictly construed and not extended beyond its intended purpose, as established in precedents like Mancheri Puthusseri Ahmed and Imagic Creative Pvt. Ltd.
• The Tribunal determined that the extended period for issuing show cause notices was improperly invoked, as there was no evidence of suppression or intent to evade duty by the appellant.
• The Tribunal set aside the impugned orders on both merits and limitation, allowing the appeals.