2016 (12) TMI 1463 - AT - Central Excise

CENVAT credit - MS items under the category of capital goods - Held that - the amount of ₹ 18,00,168/- has been utilised for pre-heater, staircase, coal mill building, platforms, silo, coal mill platform etc - The appellant is eligible for that part of the MS items which were used for fabrication and manufacture of capital goods / parts / components - credit allowed for this part. The credit of ₹ 11,88,607/- availed by the appellant on MS items used for civil construction as well as temporary structures is not eligible for credit. The same is disallowed. The appellant has reversed the credit to the tune of ₹ 29,88,775/- even before the issuance of the show-cause notice - The irregular credit having been reversed prior to the utilisation, so, the appellant is not liable to pay interest Appeal disposed off - decided partly in favor of appellant.

Summary

Issues:
- Irregular availment of CENVAT credit on MS items under the category of capital goods.
- Applicability of limitation period for issuing show-cause notice.
- Eligibility of credit for MS items used in fabrication and erection of capital goods.
- Disallowance of credit for MS items used in civil construction works and temporary structures.
- Liability to pay interest on reversed credit amount.
- Penalty imposition based on suppression of facts.

Analysis:
1. The case involves the irregular availment of CENVAT credit by the appellants on MS items categorized as capital goods during the expansion of their factory. The Department alleged irregularity amounting to ? 29,88,775 and imposed a penalty equal to the credit amount.

2. The appellant argued on the grounds of limitation, stating that the show-cause notice issued after the period from March 2007 to February 2008 was time-barred. The appellant contended that the notice was based on information already disclosed in their ER1 returns, thus challenging the validity of invoking the extended period of limitation.

3. Regarding the eligibility of credit for MS items used in fabrication and erection of capital goods, the appellant claimed that a significant portion of the credit amount was rightfully availed for these purposes. However, they acknowledged that a portion of the credit was used for temporary structures during the expansion works and should not be eligible for credit.

4. The Department argued that the MS items were used for civil construction works, making the appellant ineligible for the credit. They contended that the irregularity would not have been discovered without the Department's inspection, justifying the imposition of the extended period of limitation.

5. The Tribunal analyzed the records and found that while a portion of the MS items was used for civil construction, a significant amount was genuinely utilized for the manufacture of capital goods and components. Consequently, the Tribunal disallowed credit for the portion used in civil construction and temporary structures, amounting to ? 11,88,607, while allowing credit for the remaining eligible amount of ? 18,00,168.

6. The Tribunal ruled that since the appellant had already reversed the irregular credit before utilization, they were not liable to pay interest on the reversed amount. Citing relevant case laws, the Tribunal upheld the appellant's position on interest liability.

7. Ultimately, the Tribunal modified the impugned order, disallowing credit only for the ineligible portion of ? 11,88,607 and setting aside the demand for interest on this amount. The appeal was partly allowed based on these terms, providing relief to the appellant on the penalty issue.