2025 (4) TMI 1318 - AT - Central Excise

Denial of CENVAT Credit - duty paying documents were not available with the Appellant - invocation of extended period of limitation - HELD THAT - There is nothing coming on record that the Appellant has contravened the provisions of Rule 57AE of the Central Excise Rules 1944 or Rule 7 of Cenvat Credit Rules 2002. Similar issue has been decided by this Bench in the case of Exide Industries Ltd. vs. Commissioner of C.Ex. Haldia 2008 (1) TMI 190 - CESTAT KOLKATA . This Bench has held that There is no doubt that Notification No. 13/03 dated 1-3-2003 has substituted the word procured for the word purchase in sub-rule (4) of Rule 7 of CENVAT Credit Rules 2002 w.e.f. 1-3-2003. But Notification No. 27/2000 dated 31-3-2000 which sought to amend CENVAT Credit Rules 2000 does not prohibit to read the said substitution for the period earlier to that under challenge. Definition inputs under Rule 57A of Central Excise Rules 1944 read with Rule 57B and conditions laid down by Rule 57AC nowhere warranted purchase is sine qua non. Therefore Notification No. 13/2003 dated 1-3-2003 guides to appreciate legislative intention. Further decisions cited by learned Counsel also brings its case in all four. When a levy is not expressly designed by law by a statutory provision respective Rule which grants credit cannot be presumed to be a charging section by any analogy. Conclusion - The appellant is entitled to Cenvat Credit on inputs received from its sister unit. Appeal allowed.

Summary

The core legal questions considered in this judgment are:

1. Whether the appellant, receiving inputs from its sister unit located in Pune, is entitled to claim Cenvat Credit on such inputs used in the manufacture of finished goods on which Excise duty has been paid.

2. Whether the appellant has complied with the procedural requirements under Rule 57AE of the Central Excise Rules, 1944 and Rule 7 of the Cenvat Credit Rules, 2002, particularly in relation to maintaining proper duty-paying documents and records.

3. Whether the absence of duty-paying documents with the appellant, as held by the Commissioner (Appeals), justifies denial of Cenvat Credit and confirmation of demand raised by the Department invoking extended period provisions.

Issue-wise Detailed Analysis:

Issue 1: Entitlement to Cenvat Credit on inputs received from sister unit

Legal Framework and Precedents: The relevant provisions are Rule 57AE of the Central Excise Rules, 1944, and Rule 7 of the Cenvat Credit Rules, 2002. The definition of "inputs" under Rule 57A read with Rule 57B and conditions in Rule 57AC are pertinent. The Court also relied heavily on the precedent set by the Tribunal in Exide Industries Ltd. vs. Commissioner of C.Ex., Haldia, where it was held that inputs received from a sister unit and used in manufacture of finished goods on which duty is paid are eligible for Cenvat Credit.

Court's Interpretation and Reasoning: The Court observed that the Department did not dispute the receipt of inputs from the Pune unit. The appellant produced sample invoices which were proper Central Excise invoices showing details of goods, rates, values, and excise duty involved. The appellant also maintained records in RG-23 Part-I and Part-II, evidencing proper accounting of inputs.

Key Evidence and Findings: The invoices and accounting entries demonstrated that the inputs were duty paid and properly recorded. The appellant's submissions and documentary evidence established that the inputs were used in manufacture of finished goods where excise duty was paid.

Application of Law to Facts: The Court applied the principle from the Exide Industries case that the absence of a formal "purchase" is not fatal to claiming Cenvat Credit, especially where inputs are transferred between sister units and duty is paid on finished goods. The Court emphasized that the term "procured" in Rule 7(4) replaced "purchase" and that the legislative intent did not require purchase as a sine qua non for claiming credit.

Treatment of Competing Arguments: The Department argued that the appellant failed to produce proper duty paying documents and thus credit should be denied. The Court rejected this, finding the invoices and records sufficient and the Department's argument unsubstantiated on facts.

Conclusion: The appellant is entitled to Cenvat Credit on inputs received from its sister unit.

Issue 2: Compliance with procedural requirements under Rule 57AE and Rule 7

Legal Framework and Precedents: Rule 57AE(3) requires maintenance of records of inputs received and used. The Exide Industries judgment clarified that the word "purchase" appears only in procedural provisions and does not affect substantive entitlement to credit.

Court's Interpretation and Reasoning: The Court found no evidence that the appellant contravened Rule 57AE or Rule 7. The appellant maintained proper records and invoices. The procedural requirement to maintain records was fulfilled, and the absence of a formal purchase document was not fatal.

Key Evidence and Findings: The appellant's entries in RG-23 Part-I and Part-II and the invoices from the sister unit were sufficient to satisfy procedural requirements.

Application of Law to Facts: The Court held that procedural rules do not impose a substantive condition of purchase for claiming credit. The appellant's compliance with record-keeping rules was adequate.

Treatment of Competing Arguments: The Department insisted on strict documentary proof of duty payment at the appellant's end, which the Court found unnecessary given the evidence of duty paid by the sister unit and proper accounting.

Conclusion: The appellant complied with procedural requirements under the relevant rules.

Issue 3: Justification for denial of credit and confirmation of demand based on absence of duty paying documents

Legal Framework and Precedents: The extended period provisions invoked by the Department require clear evidence of contravention. The Exide Industries case clarified that credit cannot be denied merely because the appellant does not hold separate duty paying documents if the inputs have been duty paid and accounted for.

Court's Interpretation and Reasoning: The Court noted that the adjudicating authority had initially dropped the demand after ascertaining that duty was paid at the sister unit and inputs were accounted for. The Commissioner (Appeals) reversed this without sufficient basis. The Court found no contravention warranting denial of credit or confirmation of demand.

Key Evidence and Findings: The invoices and accounting records evidenced payment of duty and receipt of inputs. No evidence was found of misuse or evasion.

Application of Law to Facts: The Court applied the principle that the rules granting credit are not charging provisions and that denial of credit requires clear statutory basis. The absence of duty paying documents at the appellant's end was not sufficient ground to deny credit.

Treatment of Competing Arguments: The Department's reliance on lack of documents was rejected as the appellant had produced adequate evidence of duty payment and receipt.

Conclusion: The demand raised and confirmed by the Commissioner (Appeals) was set aside.

Significant Holdings:

"There is no doubt that Notification No. 13/03, dated 1-3-2003 has substituted the word 'procured' for the word 'purchase' in sub-rule (4) of Rule 7 of CENVAT Credit Rules, 2002 w.e.f. 1-3-2003. But Notification No. 27/2000, dated 31-3-2000 which sought to amend CENVAT Credit Rules, 2000 does not prohibit to read the said substitution for the period earlier to that, under challenge. Definition 'inputs' under Rule 57A of Central Excise Rules, 1944 read with Rule 57B and conditions laid down by Rule 57AC nowhere warranted 'purchase' is sine qua non."

"When a levy is not expressly designed by law by a statutory provision, respective Rule which grants credit cannot be presumed to be a charging section by any analogy."

"The word 'purchased' has been used only in the procedural Rule 57AE(3) in the context of maintaining record of inventory whereas there is no such stipulation regarding 'purchase' in the substantive Rule granting input duty credit."

Core principles established include that Cenvat Credit can be legitimately claimed on inputs received from a sister unit where duty has been paid on finished goods, even if no formal purchase transaction exists; procedural requirements for record maintenance do not impose substantive conditions on entitlement; and absence of duty paying documents with the recipient unit is not a valid ground for denial of credit if the inputs are duty-paid and properly accounted for.

The final determination was to set aside the impugned order denying Cenvat Credit and to allow the appeal, granting the appellant entitlement to credit along with consequential relief as per law.