2016 (2) TMI 21 - HC - Central Excise

Extended period of limitation - Cenvat Credit - clearance of inputs as such - bonafide error in not reversing the credit as per Rule 3(5) of CCR - Held that - It was noticed that the assessee had under bona-fide belief not reversed the CENVAT credit on the goods so cleared. That being a finding of fact, in our opinion, no question of law arises. - Counsel for the revenue pointed out that even the demand within the period of 1 year from the date of notice is struck down by the Tribunal on the ground that the situation was of revenue neutrality without full discussion on the issue. - Decided against the revenue.

Summary

Issues:
1. Benefit of Cenvat credit in violation of Rule 3(5) of Cenvat Credit Rules, 2004.
2. Permission to clear inputs in contravention of Notification No.22/2003-CE.
3. Invocation of extended period of limitation under Section 11A of the Act.
4. Sustainability of demand within the period of limitation based on revenue neutrality.

Analysis:

1. The appeal raised concerns regarding the benefit of Cenvat credit granted to the respondent, alleged to be a violation of Rule 3(5) of the Cenvat Credit Rules, 2004. The Tribunal's decision was based on the premise that the assessee, under a bona fide belief, did not reverse the credit upon clearance of goods. The Tribunal referred to the decision in the case of Lakshmi Automatic Loom Works Ltd. v/s. CCE Trichy, where it was clarified that CENVAT credit taken by a DTA Unit must be reversed when inputs are cleared to an EOU.

2. The issue of allowing the respondent to clear inputs contrary to Notification No.22/2003-CE was also raised. The Tribunal's decision was influenced by the fact that the assessee had acted in good faith and had not reversed the CENVAT credit on the cleared goods. The Tribunal's reliance on the decision in the case of CCE & C. v/s. Mafatlal Industry was noted, although the Tribunal's refusal to permit the extended period of limitation was not solely based on this ground.

3. The matter of invoking the extended period for recovery of excise duty under Section 11A of the Act was a significant point of contention. The Tribunal had reversed the department's decision to apply the extended period of limitation of 5 years, emphasizing that the assessee had genuinely believed that the credit did not need to be reversed. This decision was supported by the finding that the assessee had acted in good faith, thereby negating the need for further legal intervention.

4. The sustainability of the demand within the limitation period, including the period of 1 year, was challenged on the grounds of revenue neutrality. The Tribunal's decision to strike down the demand within the 1-year period was questioned by the revenue, citing lack of detailed discussion on the issue. The appeal was admitted to consider the substantial question of law regarding the Tribunal's direction to demand excise duty even within the 1-year period based on the concept of revenue neutrality.