2020 (1) TMI 268 - AT - Central Excise

CENVAT Credit - common inputs/input services used in the manufacture of the exempted final product as well as the other excisable product - non-maintenance of separate records - Rule 6 of CCR - period from 07/2005 to 03/2010 - HELD THAT - In the present case two periods are involved for the period 2008-2009 and 2009-2010, the appellant has already reversed the proportionate credit attributable to input services used for the exempted goods and the same has been accepted in the SCN and has also been appropriated and is not in dispute - Further, it is found that once the appellant has reversed the proportionate credit for the period April 2008 to March 2010 as provided under Rules then the question of demand of amount of 10% on the value of exempted goods as per Rule 6(3)(i) does not arise - it is the option of the assessee to choose either of the three options given under Rule 6 and the Department cannot substitute its own option and this has been settled by the Tribunal in the case of M/S. MERCEDES BENZ INDIA (P) LIMITED VERSUS COMMISSIONER OF CENTRAL EXCISE, PUNE-I 2015 (8) TMI 24 - CESTAT MUMBAI and also by the recent decision of the Telangana High Court in the case of M/S TIARA ADVERTISING VERSUS UNION OF INDIA MINISTRY OF FINANCE DEPARTMENT OF REVENUE 2019 (10) TMI 27 - TELANGANA AND ANDHRA PRADESH HIGH COURT . Demand of ₹ 10,03,983/- pertaining to the period July 2005 to March 2008 - Time limitation - HELD THAT - The entire demand is barred by limitation for the reason that during the disputed period, there was a dispute regarding statutory interpretation of Rule 6 of the CCR and subsequently there was a retrospective amendment vide Finance Act, 2010 also - also, the present proceedings were initiated on the basis of audit objections and it is well settled that no suppression can be alleged on the basis of audit objection in view of the various decisions relied upon by the appellants - further, in the present case, the appellant has placed on record Audit Note dated 08.02.2010 wherein Department itself has recorded that they had previously conducted audit of the records of the appellant during December 2008 audited up to March 2008 no objection on the issue was raised in the previous audit conducted by the Department. Therefore, the CENVAT credit availed by the appellant was in the knowledge of the Department and therefore, the question of suppression of facts with intent to evade payment of duty does not arise and cannot be alleged against the appellant. Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Availment of CENVAT credit on inputs for manufacturing exempted goods.
2. Contravention of Rule 6(2) of CCR, 2004.
3. Demand of duty, interest, and penalty.
4. Compliance with Rule 6(3)(ii) and Rule 6(3A) of CCR, 2004.
5. Bar on demanding amount under Rule 6(3)(i) of CCR, 2004.
6. Limitation on demand for the period July 2005 to March 2008.
7. Allegation of wilful suppression of facts.
8. Interpretation of Rule 6 of CCR, 2004.
9. Applicability of audit observations in proceedings.

Analysis:
The case involved the appellant, a manufacturer of excisable goods, availing CENVAT credit on inputs for manufacturing exempted goods, leading to a demand for duty, interest, and penalty. The issue arose due to the appellant not maintaining separate inventory for input services used in manufacturing exempted goods, contravening Rule 6(2) of CCR, 2004. The appellant argued compliance with Rule 6(3)(ii) and Rule 6(3A) for the period from July 2008 to March 2010, emphasizing the reversal of proportionate credit for exempted goods. They cited legal precedents to support their position, asserting that the demand under Rule 6(3)(i) was unjustified as credit reversal equated to non-availment. The appellant contended that the Revenue cannot insist on demanding amounts under Rule 6(3)(i) and highlighted that the Department cannot substitute the assessee's option under Rule 6. Legal decisions, including the Tribunal and High Court judgments, were referenced to support this argument.

Furthermore, the appellant argued that the demand for the period July 2005 to March 2008 was time-barred, citing uncertainty in statutory interpretation and retrospective amendments. They emphasized that the proceedings were initiated based on audit objections, precluding allegations of wilful suppression. The appellant presented evidence of periodic audits by the Department, asserting that the Department's knowledge of the credit availed negated any suppression allegations. Various legal decisions were cited to strengthen this argument, emphasizing that audit objections alone do not imply evasion of duty.

In contrast, the Authorized Representative defended the impugned order, leading to a detailed analysis by the Judicial Member. The Member examined the appellant's contentions, legal precedents, and the Department's audit history. Ultimately, the Member found the impugned order unsustainable in law based on the cited legal precedents. By applying the principles established in the referenced decisions, the Member set aside the impugned order, allowing the appellant's appeal. The judgment highlighted the importance of compliance with CENVAT credit rules, the significance of legal interpretations, and the limitations on demanding amounts under specific provisions.