2019 (7) TMI 67 - HC - Central Excise

CENVAT credit - common inputs used in manufacture of exempted final products - non-maintenance of separate records - extended period of limitation - income earned on account of sale of Steam , Fly Ash and Electricity and availment utilization inputs - HELD THAT - The appeal admitted on substantial questions of law.

Summary

Issues Involved:
1. Whether subsequent reversal of credit attributable to inputs used in the manufacture of exempted final products is sufficient to discharge the demand?
2. Whether demand for the extended period is hit by limitation when income earned on exempted goods came to the notice after an audit?
3. Whether CESTAT was justified in not relying on certain cases favoring the revenue?

Analysis:

Issue 1:
The first substantial question of law pertains to the sufficiency of subsequent reversal of credit for exempted final products in discharging the demand. The key concern is whether the assessee's failure to maintain separate accounts as required under Rule 6(2) of CCR or not following any option under Rule 6(3) of OCR affects the discharge of the demand. The court is tasked with determining whether the reversal of credit, along with interest, is adequate to meet the demand, particularly when specific account maintenance rules have not been adhered to.

Issue 2:
The second issue revolves around the limitation period for demand when income from exempted goods is discovered post-audit. The Court is to examine whether the CESTAT's decision on the limitation period is justifiable in a scenario where the department became aware of income earned from items like 'Steam,' 'Fly Ash,' and 'Electricity' only after auditing the respondent's records. Additionally, the Court will assess the validity of not considering the case of M/s Lonsenkiri Chemicals Industries vs. C.C.E, Cus and Service Tax, Vadodara-I, in relation to the limitation period.

Issue 3:
The final issue questions the CESTAT's decision not to rely on various cases favoring the revenue. The Court must evaluate the justification behind not considering cases such as Commissioner of C. Ex., Thane-I vs. Nicholas Piramal (India) Ltd., Gujarat Narmada Fertilizers Co. Ltd., Lally Automobile Vs. Commr., CCE Vadodara-II Vs. Unimed Technologies Ltd., Modern Insulator Ltd. Vs Addl. Commr., Tata Steel Ltd. Vs. CCE, Jamshedpur, and State of Jharkhand Vs. Ambay Cements, which are deemed similar to the present case and are in favor of the revenue. The decision to not rely on these cases will be scrutinized in the context of the current matter.

The judgment involves a detailed analysis of substantial legal questions concerning the reversal of credit for exempted goods, the limitation period for demand post-audit discovery, and the reliance on past cases favoring revenue. The Court's assessment will be crucial in determining the outcomes of these issues and their implications on the overall tax appeal.