2022 (3) TMI 1098 - AT - Central Excise

Recovery of CENVAT Credit alongwith interest and penalty - distribution of CENVAT Credit - allegation in the SCN is that the ISD was distributing service tax credit on monthly basis whereas the pro rata turn over unit for distribution was taken for previous year - Rule 7 of CCR, 2004 - issuance of two SCN for same period - input services or not - admissibility of credit if the address of the service provider and amount of credit distributed is not mentioned in the Challan - distribution of credit on the basis of pro-rata turnover of previous year instead of on the basis of monthly turnover - recovery of amount alongwith interest and penalty. Issue of two show cause notices for the same Period - HELD THAT - Demand of duty is a matter of assessment. If duty is short paid it can be recovered under Section 11A after issuing a notice. The show cause notice which culminated in the present appeal has nothing to do with duty. It deals with a different issue of Cenvat credit. Irregularly availed Cenvat credit is recoverable under Rule 14 of CCR, 2004. There is no detailed mechanism laid down for recovery under Rule 14 of CCR, 2004 and for this purpose the provisions of Section 11A have been made applicable mutatis mutandis for Rule 14 also. Nevertheless, any recovery of irregularly availed Cenvat credit under Rule 14 is not demand of duty at all. Section 11A deals with the duty which the assessee has to pay on final products. Rule 14 deals with the credit of duty on inputs which someone else had paid which the assessee has taken credit of. Any denial of Cenvat taken will not affect the duty liability. Similarly, any demand of duty will not affect the Cenvat credit. If Cenvat credit is wrongly availed, a penalty can be imposed under Rule 15 of CCR, 2004. If duty is short paid, penalty can be imposed under Section 11AC - there are no illegality in the Revenue issuing two show cause notices; one for recovery of irregular availed Cenvat credit (which is subject matter of the present appeal) and another show cause notice for recovery of duty short paid. It does not amount to two assessments for the same period in this case. Distribution of input service credit only to the appellant - HELD THAT - From the impugned order, it is not clear how the Commissioner has come to the conclusion that the entire credit has been distributed to only Bhiwadi unit up to September 2015 and excess credit has been distributed to the appellant i.e. Bhiwadi unit from October 2015 to December, 2015 based on his examination of two or three challans - the appellant has submitted Company Secretary s calculation sheet showing Cenvat credit taken by company on the basis of ISD challan and the distribution of Cenvat credit to different unit by the ISD which was enclosed as Annexure-9 to the reply to the show cause notice filed before the Commissioner. There is no discussion and the impugned order that the Company Secretary certificate was not correct and the Cenvat credit has been wrongly distributed - the charge of the ISD distributed the entire credit to the appellant is not sustainable and needs to be rejected. Address of the service provider and amount credit distributed not being mentioned in the ISD challans - HELD THAT - Appellant submits that the details were provided in the Annexures to the challans issued by the ISD. The ISD challans must contain details mentioned in Rule 4A of the Service Tax Rules to qualify as Cenvatable documents. We find that these details require a thorough examination of each of the documents on which Cenvat credit is taken. Therefore, this is a fit case to remit the matter to the adjudicating authority for conducting the necessary verification and decide as to which ISD challans, coupled with the Annexures contain all the essential details to be eligible for Cenvat credit. Whether the Commissioner could have denied Cenvat credit on the ground that certain input services do not qualify under Rule 2(l) of CCR, 2004? - HELD THAT - The show cause notice did not raise this ground and the Commissioner cannot confirm the demand on a new ground. Whether the ISD had distributed the credit incorrectly as held by the Commissioner in the impugned order or has done it correctly as per Rule 7 read with Explanation 3, as applicable during the relevant period? - HELD THAT - This issue also needs thorough examination by the Commissioner. The impugned order is not vitiated on the ground that another show cause notice demanding short paid duty of excise was issued to the appellant during the same period. The Commissioner was not correct in denying Cenvat credit on the ground that the input service do not qualify under Rule 2(l) of the CCR, 2004 because the appellant was not put to notice on this ground. It is apparent from the records produced by the learned Counsel that the headquarters of the appellant had distributed the Cenvat credit to the appellant as well as to other units - the matter needs to be remitted to the adjudicating authority for determining the above two facts and re-computing the liability of Cenvat credit, if any. The appeal is allowed by way of remand to the adjudicating authority.

Summary

Issues Involved:

1. Issuance of two show cause notices for the same period.
2. Denial of Cenvat credit on the ground that certain input services do not qualify as 'input services' under Rule 2(l) of CCR, 2004.
3. Distribution of input service credit only to the appellant.
4. Inadmissibility of Cenvat credit if the address of the service provider and the amount of credit distributed is not mentioned in the ISD challan.
5. Incorrect distribution of credit by ISD based on pro-rata turnover of the previous year instead of monthly turnover.
6. Recovery of interest under Rule 14 of CCR, 2004 read with Section 11AB of Central Excise Act, 1944.
7. Imposition of penalty under Rule 15 of CCR, 2004.

Issue-wise Detailed Analysis:

1. Issuance of two show cause notices for the same period:

The appellant argued that two show cause notices cannot be issued for the same audit period, citing various case laws. The Tribunal distinguished the present case by noting that one notice was for recovery of duty short paid, while the other was for recovery of irregularly availed Cenvat credit. The Tribunal concluded that issuing two show cause notices does not amount to double assessment for the same period since they deal with different issues.

2. Denial of Cenvat credit on the ground that certain input services do not qualify as 'input services' under Rule 2(l) of CCR, 2004:

The appellant contended that the Commissioner went beyond the scope of the show cause notice by denying Cenvat credit on new grounds not mentioned in the notice. The Tribunal agreed, stating that the Commissioner cannot confirm the demand on a new ground that was not part of the original notice.

3. Distribution of input service credit only to the appellant:

The Tribunal found that the Commissioner’s conclusion that the ISD distributed the entire credit only to the Bhiwadi unit up to September 2015 was not substantiated with clear evidence. The appellant provided documents showing distribution to other units, which the Commissioner did not adequately address. The Tribunal rejected the charge that the ISD distributed the entire credit to the appellant.

4. Inadmissibility of Cenvat credit if the address of the service provider and the amount of credit distributed is not mentioned in the ISD challan:

The appellant argued that substantial benefit of Cenvat credit cannot be denied due to procedural lapses. The Tribunal noted that ISD challans must contain details as per Rule 4A of the Service Tax Rules. The case was remitted to the adjudicating authority to verify if the essential details were available in the ISD challans and annexures.

5. Incorrect distribution of credit by ISD based on pro-rata turnover of the previous year instead of monthly turnover:

The Tribunal found that this issue requires thorough examination by the Commissioner. The appellant claimed compliance with the provisions, but the Commissioner needs to verify if the credit was distributed correctly as per the applicable rules.

6. Recovery of interest under Rule 14 of CCR, 2004 read with Section 11AB of Central Excise Act, 1944:

The Tribunal did not address this issue separately, implying that the outcome depends on the verification of the distribution of credit and the details in the ISD challans.

7. Imposition of penalty under Rule 15 of CCR, 2004:

The Tribunal did not specifically address the penalty issue, but it is implied that the penalty would be reconsidered based on the findings after remand.

Conclusion:

The Tribunal allowed the appeal by way of remand to the adjudicating authority for verification of two key issues: whether the essential details required in the ISD challans were available and whether the credit was properly distributed as per the new Explanation 3 to Rule 7 of CCR, 2004. The impugned order will abide by the new findings.