2015 (10) TMI 2198 - AT - Central Excise

Denial of CENVAT Credit - input services availed prior to commencement of manufacturing activity - cargo handling service - distribution of credit - Penalty u/s 11AC - Invocation of extended period of limitation - Held that - Rule 7 of Cenvat Credit Rules, 2004 deals with the manner of distribution of cenvat credit by ISD - there are two restrictions under the said Rule that the cenvat credit cannot be distributed more than the service tax paid and credit should be used by a manufacturing unit of excisable goods. Further, Rule 3 of the Cenvat Credit Rules provides that manufacturer of the final products shall be allowed to take Cenvat Credit. Sub rule 4 of Rule 3 of Cenvat Credit Rules, also state that cenvat credit can be utilized for payment of excise duty on final product. - A plain reading of both the Rules clarifies that there is no restriction to the effect that if any assessee avail cenvat credit on procurement of inputs (prior to start of manufacture), is not entitled to take cenvat credit. Infact, without procuring inputs, or some inputs service, assessee cannot start manufacturing activity. Therefore, it cannot be said that an assessee who is a manufacturer of excisable goods is to be denied the cenvat credit of duty paid on inputs or input service availed prior to start of manufacturing activity. When the adjudicating authority held that it is an issue of interpretation of Rule, therefore it cannot be alleged that appellant has taken cenvat credit by way of fraud, collusion, willful mis statement, suppression of fact or contravened the provisions of Act/ Rule with an intent to evade payment of duty. Further, in the impugned order, Commissioner (Appeals) has himself has recorded that the appellant has stated that show cause notice is barred by limitation because there was no suppression on their part - It is correct that assessee should have known all the Rules / provisions of Rules, Act but there are omission on the part of the appellant for invoking extended period of limitation which is absent in this case. Therefore, extended period of limitation, is also not invokable in the facts of this case. In these circumstances, I hold that the appellant is having the case on merits as well as on limitation. Therefore, I set aside the impugned order - Decided in favour of assessee.

Summary

Issues involved:
1. Denial of cenvat credit on service tax prior to the start of production.
2. Invocation of extended period of limitation for imposing penalty.

Detailed Analysis:
1. The appellant appealed against the order denying cenvat credit on the basis that the ISD distributed the credit before the start of production, which was then utilized for duty payment. The appellant argued that Rule 3 of Cenvat Credit Rules, 2004 allows for credit utilization before manufacturing begins, with Rule 7 governing ISD credit distribution. The appellant cited relevant case laws to support their claim. The issue of extended limitation period was raised due to a show cause notice issued later. The adjudicating authority did not impose a penalty, but the Commissioner (Appeals) disagreed. The appellant contended that the extended period was not applicable.

2. The respondent opposed the appellant's claim, arguing that taking cenvat credit before production starts is not permissible. They emphasized that the department learned of this during an audit, justifying the extended limitation period. The respondent disputed the relevance of the case laws cited by the appellant. The tribunal analyzed Rule 7, which limits credit distribution and Rule 3, allowing manufacturers to claim credit. It was concluded that there is no restriction on procuring credit before production. The tribunal found no merit in the respondent's arguments and upheld the appellant's right to the credit. Regarding the limitation issue, it was determined that the appellant did not act with fraudulent intent or suppression, thus the extended period was not applicable. The tribunal set aside the impugned order, allowing the appeal with any necessary relief.