2017 (2) TMI 712 - AT - Central Excise

CENVAT credit - common inputs used in the manufacture of excisable and exempted final products - delay in filing application - Held that - when the quantum of inadmissible credits for the period of dispute has been reversed within 6 months from the date on which the Finance Bill, 2010 received the assent of the Hon ble President of India and also has satisfied the terms of the Trade Notice No.25/2010 dt. 16-09-2010, substantive benefit of the beneficial provisions of Section 69 and 73 of the Finance Act,2010 cannot be denied to the appellant only on the grounds that there was delay in filing the application and also that interest payable on the amounts reversed was paid only on 23-2-2010. Interest on the said amount of will definitely also be payable under Rule 14 of the Cenvat Credit Rules, 2004 read with Section 11AB of the Central Excise Act, 1944. No penalty can be imposed on the appellants especially considering that the amount of ₹ 23,06,207/- was paid by the appellants for resolution of the dispute as per the trade notice along with interest liability of ₹ 18,69,311/- also paid, albeit belatedly on 23.12.2010. Matter remanded for verifying calculation of credits reversed - appeal allowed by way of remand.

Issues Involved:
1. Ineligibility of CENVAT credit on common inputs used for both excisable and exempted final products.
2. Demand for reversal of CENVAT credit and associated interest and penalties.
3. Compliance with Trade Notice No. 25/2010 and the provisions of Sections 69 and 73 of the Finance Act, 2010.
4. Adjudication of the Show Cause Notice despite compliance efforts by the appellant.
5. Penalty imposition on the appellant.

Detailed Analysis:

1. Ineligibility of CENVAT Credit:
The core issue revolves around the ineligibility of CENVAT credit availed on common inputs used in the manufacture of both excisable and exempted final products. The appellant was found to have not reversed the required percentage (10%/5%) of the value of exempted goods as mandated by Rule 6 of the Cenvat Credit Rules, 2004.

2. Demand for Reversal of CENVAT Credit and Associated Interest and Penalties:
A Show Cause Notice dated 08.05.2010 demanded Rs. 72,23,44,335/- for the period April 2005 to September 2009, along with interest and penalties. The lower authority confirmed these demands. The appellant contested this, arguing that they had already calculated and paid their tax liability for the period 16-05-2005 to 30-11-2007, amounting to ? 23,06,207/-, along with interest of ? 18,69,311/-.

3. Compliance with Trade Notice No. 25/2010 and Sections 69 and 73 of the Finance Act, 2010:
The appellant cited Trade Notice No. 25/2010, which allowed manufacturers to resolve disputes by paying the attributable amount of credit along with interest. The appellant complied by reversing the credit and paying the interest, albeit with delays. The adjudicating authority acknowledged the correctness of the payments but penalized the appellant for the delay.

4. Adjudication of the Show Cause Notice Despite Compliance Efforts:
Despite the appellant's compliance efforts, the adjudicating authority proceeded with the Show Cause Notice and confirmed the demand of ? 72,23,44,335/-. The authority justified this on the grounds of delayed application and interest payment, even though the appellant had reversed the credit within the stipulated six months from the Finance Bill's assent.

5. Penalty Imposition on the Appellant:
The tribunal noted that the dispute arose from a misinterpretation of statutory provisions by the appellant, a public sector unit under the Ministry of Defence. Given the appellant's compliance with the Trade Notice and the absence of any willful suppression, the tribunal found that imposing penalties was unwarranted.

Judgment:
The tribunal set aside the demand of ? 72,23,44,335/- and restricted it to the amount verified and paid by the appellant. The interest paid by the appellant was also appropriated. The tribunal remanded the matter to the adjudicating authority to verify the calculations of the jurisdictional Deputy Commissioner. If the calculations were found correct, no further demand would be made. The appeal was disposed of accordingly, with no penalties imposed on the appellant.

Conclusion:
The tribunal concluded that the appellant had substantially complied with the requirements of the Trade Notice and the Finance Act, 2010. The delay in application and interest payment did not justify the excessive demand and penalties initially imposed. The case was remanded for verification of the Deputy Commissioner's calculations, ensuring no further demands if found accurate.

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