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2018 (7) TMI 529 - AT - Central ExciseCENVAT credit - duty paying documents - rejected goods - it appeared that the appellant have availed suo motu credit without the cover of documents specified in Rule 9 of CENVAT Credit Rules - it was alleged that appellant availed CENVAT Credit twice in respect of the same inputs - case of appellant is that the entire exercise is Revenue neutral - suppression of facts. Whether the appellant can avail CENVAT credit on their own invoices issued in the name of their vendor rejecting the inputs, which were actually not cleared from the plant but remained inside the plant and whether the appellant has availed double CENVAT Credit on some goods? - whether the extended period of limitation has been rightly invoked by the department? Held that - There is no doubt that the appellant have adopted a completely wrong practice. If the inputs were urgently required for production of two wheelers, the appellant need not prepare Invoice for sending the rejected materials back to the vendors and instead ought to have rectified the same in-house. They were also not required to reverse the credit and re-credit in their accounts. Even if they prepared the invoices, they ought to have cancelled the same and have to inform it to the jurisdictional commissioner. The Appellant after receiving the inputs from their suppliers availed Cenvat credit of Central Excise duty mentioned in the invoice as payable on such inputs, although it was not yet paid, in terms of Rule 8(2) of the Central Excise Rules, 2002. After the rejection of inputs, invoice was prepared for return of these inputs to its supplier creating liability of reversal of Cenvat credit availed on such inputs. However, the inputs remained in the plant itself and after due rectification, were again taken into their inventory and again Cenvat Credit on these inputs is availed in terms of Rule 16 (1) of the Central Excise Rules, 2002 on the basis of their own invoices. This shows that although the original duty liability on the inputs payable by the supplier is yet to be paid, but Cenvat credit availed under Rule 8(2). The fact about the availment of credit in respect of the rejected inputs on the basis of Appellant s own invoices issued in the name of their vendors was never brought to the knowledge of the department. I have been informed that the Appellant in their monthly ER-1 returns had only shown the quantity of rejected material and duty debited against the same. They never disclosed the fact about in-house rectification of the Inputs by the Appellant and second time credit in respect of such Inputs. The said fact came into the knowledge of audit team at the time of audit only, otherwise the Appellant would have continued with this practice. This shows the mala fide intention of the Appellant. - extended period has been rightly invoked. Liability of Interest and penalty - held that - Since the extended period has rightly been invoked by the department, therefore the appellant is also liable to pay interest and penalty - the matter is remanded for re-quantification of interest and penalty. Appeal allowed by way of remand.
Issues Involved:
1. Wrongful availment and utilization of CENVAT credit. 2. Imposition of penalty under Rule 15(2) of CENVAT Credit Rules, 2004 read with Section 11AC of Central Excise Act, 1944. 3. Recovery of interest under Rule 14 of CENVAT Credit Rules, 2004 read with Section 11AA of the Central Excise Act, 1944. 4. Extended period of limitation for issuing the show cause notice. 5. Incorrect quantification of demand. Detailed Analysis: 1. Wrongful Availment and Utilization of CENVAT Credit: The appellant, engaged in the manufacture of two-wheelers, availed CENVAT credit on inputs without proper documentation as specified in Rule 9 of the CENVAT Credit Rules, 2004. They availed credit twice on the same inputs—once on receipt of the invoice and again on rejected inputs without dispatching them. This practice led to the issuance of a show cause notice demanding recovery of ?42,64,135/- wrongly availed and utilized. The adjudicating authority disallowed the credit along with interest and imposed a penalty. The Commissioner (Appeals) partially allowed the appellant’s appeal but upheld the penalty. The tribunal found that the appellant adopted a wrong practice by preparing invoices for rejected materials and availing double credit. Rule 4(1) of CENVAT Credit Rules allows credit on receipt of inputs in the factory, and Rule 8(2) allows credit when goods and invoices are received, even if duty is paid later. Rule 16(1) permits credit for goods brought back to the factory. However, the appellant's case involved inputs already in the factory, leading to double credit on the same inputs before discharging duty liabilities, which is illegal. 2. Imposition of Penalty: The tribunal upheld the penalty imposed by the Commissioner (Appeals), citing the appellant's mala fide intention and wrongful availment of credit. The appellant's failure to disclose the in-house rectification and second-time credit in their monthly ER-1 returns indicated suppression of facts. The tribunal concurred with the Commissioner (Appeals) that the appellant's contention about the audit not raising objections was not sustainable, as the audit is selective and not comprehensive. 3. Recovery of Interest: The tribunal upheld the recovery of interest under Rule 14 of the CENVAT Credit Rules, 2004, as the wrongful credit availed by the appellant was liable to be recovered. The appellant's argument that the entire exercise was revenue-neutral and did not result in loss to the department was rejected. The tribunal emphasized the need for harmonious construction of Rule 8(2) and Rule 16(1) to avoid contradictions and ensure compliance with the law. 4. Extended Period of Limitation: The appellant argued that the demand pertained to January 2009 to January 2013, and the show cause notice issued on 3.2.2014 was beyond the one-year period. The tribunal noted that the appellant did not disclose the in-house rectification and second-time credit, which came to light only during the audit. The burden of proving the department's knowledge of wrongful availment was on the appellant, which they failed to do. The tribunal upheld the invocation of the extended period of limitation, considering the suppression of facts. 5. Incorrect Quantification of Demand: The appellant contended that ?16,58,987/- of the total demand was availed in the subsequent month after duty payment. The tribunal remanded the matter to the Commissioner (Appeals) for verification of this claim and to pass an appropriate order on this issue. Conclusion: The tribunal upheld the impugned order and remanded the matter to the Commissioner (Appeals) for limited verification regarding the quantification of demand. The appellant's appeal was dismissed on other grounds, and the penalty and recovery of interest were upheld.
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