2017 (1) TMI 23 - HC - Central Excise

Whether on the facts and circumstances of the case, the CESTAT is correct in holding that the demand raised by the Show Cause Notices dated 06.12.2004 and 07.12.2004 is not barred by limitation under the proviso to Section 11A of the Central Excise Act, 1944? - Cenvat credit on capital goods - Held that - the appellant-assessee had placed all the relevant material before the authorities as was sufficient for them to ascertain the veracity or otherwise of the claim of the appellant. The officers of the Department failed to examine the admissibility or otherwise of the claim of the assessee and defaced the invoices submitted by the assessee by putting the endorsement Modvat Credit availed under rule 57 which means that the Department was aware that the assessee had claimed Modvat credit in respect of the capital goods in question - Appeal allowed - decided in favor of the assessee.

Issues Involved:
1. Whether the demand raised by the Show Cause Notices dated 06.12.2004 and 07.12.2004 is barred by limitation under the proviso to Section 11A of the Central Excise Act, 1944.

Detailed Analysis:

1. Background and Facts:
The appellant, engaged in manufacturing pharmaceutical products, availed Cenvat credit on certain capital goods. The Department's internal audit found irregularities in availing this credit, leading to the issuance of show-cause notices for recovery and penalties. The adjudicating authority confirmed the irregularity and imposed penalties, invoking the extended period of limitation due to alleged suppression of facts by the appellant.

2. Adjudicating Authority's Findings:
The Joint Commissioner held that the goods did not qualify as capital goods under rule 57Q of the erstwhile Central Excise Rules, 1944, and that the credit availed was irregular. The authority noted that the appellant suppressed facts about the usage of these goods, justifying the invocation of the extended period under the proviso to section 11A(1) of the Act. Consequently, penalties and interest were imposed.

3. Commissioner (Appeals) Decision:
The Commissioner (Appeals) allowed the appeal on the ground of time bar without addressing the merits. The Commissioner found that the Department was aware of the credit availed, as evidenced by the defaced invoices, and that there was no requirement for the appellant to disclose the usage of capital goods. The Commissioner relied on the Apex Electricals case, holding that non-disclosure of information not required by law does not amount to suppression. Thus, the demand was deemed time-barred, and penalties were set aside.

4. Tribunal's Decision:
The Tribunal partially allowed the revenue's appeal, remanding the matter to the Commissioner (Appeals) for rehearing. It held that the lack of requirement for submitting monthly returns post-31.03.2000 did not constitute negligence by the officers, and thus, the demands were not barred by limitation.

5. Appellant's Arguments:
The appellant argued that there was no suppression since there was no legal requirement to disclose the usage of capital goods. They contended that the Department's awareness of the credit availed, as shown by the defaced invoices, negated any claim of suppression. Reliance was placed on Supreme Court decisions, emphasizing that suppression must be willful and intended to evade duty.

6. Respondent's Arguments:
The respondent contended that the appellant, under self-assessment, should have verified the eligibility of the capital goods before availing credit. They argued that the appellant knowingly contravened rule 57Q, justifying the extended limitation period due to suppression of facts.

7. Court's Analysis:
The court examined whether the extended period of limitation was justifiably invoked. It noted that the appellant had submitted invoices and monthly returns, and there was no requirement to disclose the usage of capital goods. The court referenced the Apex Electricals case, affirming that non-disclosure of non-required information does not amount to suppression. The court found that the Department was aware of the credit availed, as indicated by the defaced invoices, and failed to act timely. The court held that there was no willful suppression or intent to evade duty by the appellant.

8. Conclusion:
The court concluded that the Tribunal erred in setting aside the Commissioner (Appeals) decision and holding that the demands were not barred by limitation. The appellant had provided sufficient information for the Department to ascertain the credit's validity, and the failure of the Department to act timely negated any claim of suppression. Thus, the appeal was allowed, and the question was answered in favor of the appellant, holding that the demands raised by the show cause notices were barred by limitation under the proviso to section 11A of the Central Excise Act, 1944.

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