2023 (12) TMI 5 - AT - Central Excise

CENVAT Credit availed in respect of CVD and SAD - duty paying documents - non-eligible in terms of provisions of Rule 9(1)(b) of the CENVAT Credit Rules, 2004 - misclassification of goods imported by the appellant with an intention to evade payment of duty - HELD THAT - On perusal of the Show Cause Notice issued by DRI, it is seen that the main allegation is that of classification of the imported goods. The Show Cause Notice is issued under Section 28(1) and not under 28(4). There is no allegation of fraud, collusion, wilful mis-statement or suppression of facts for the Show Cause Notice issued by DRI. The Ld. counsel for the appellant has also submitted that the said Show Cause Notice has culminated in passing of the adjudication order. The said order dated 22.07.2019 shows that there is no finding with regard to fraud, collusion, wilful mis-statement or suppression of facts. The issue in the DRI Show Cause Notice is purely that of classification of the imported inputs. The appellant has paid the duty on the inputs under protest. It is brought out from the facts that the appellant has captively consumed the imported goods. The situation of issuing a supplementary invoice would arise only if the manufacturer sells the goods from his factory. In the present case, the appellant has captively consumed the goods. The credit has been availed of the duty paid on the TR-6 Challans - there is no reason to apply Rule 9(1)(b) of the CENVAT Credit Rules, 2004. The Tribunal Bangalore while analysing the similar issue in respect of the erstwhile Rule 7(1)(b) of the CENVAT Credit Rules, 2004 which is pari materia has held that the bar for availment of credit on supplementary invoices would operate only when the additional amount of duty becomes recoverable from the manufacturer on account of non-levy or short levy by reason of fraud, collusion or wilful mis-statement or suppression of facts, etc. Thus, the demand cannot sustain. The impugned order is set aside - appeal allowed.

Summary

Issues Involved:
1. Whether the appellant's availing of CENVAT Credit on CVD and SAD is valid under Rule 9(1)(b) of the CENVAT Credit Rules, 2004.
2. Whether the Show Cause Notice issued by DRI alleging misclassification of imported goods affects the eligibility of CENVAT Credit.

Summary:

Issue 1: Validity of Availing CENVAT Credit under Rule 9(1)(b)
The appellant availed CENVAT Credit on various capital goods, inputs, and services under the CENVAT Credit Rules, 2004. During an audit, it was found that the appellant imported Burnt Lime Lumps, classifying them under CTH No. 25221000 and paying duties accordingly. However, the DRI alleged that the correct classification should be under CTH No. 28259090, leading to a higher duty rate. Consequently, a Show Cause Notice was issued, and the appellant paid the differential duty 'under protest' and availed CVD and SAD as input credit.

The Department argued that under Rule 9(1)(b) of the CENVAT Credit Rules, 2004, credit cannot be availed if the additional duty became recoverable due to fraud, collusion, wilful mis-statement, or suppression of facts. However, the Tribunal found that the Show Cause Notice issued by DRI under Section 28(1) of the Customs Act, 1962, did not allege fraud, collusion, wilful mis-statement, or suppression of facts. Therefore, Rule 9(1)(b) was not applicable.

Issue 2: Impact of DRI's Show Cause Notice on CENVAT Credit Eligibility
The Tribunal noted that the Show Cause Notice focused on the classification of the imported goods, which is interpretational in nature, and lacked allegations of fraud or collusion. The appellant had captively consumed the imported goods and did not issue any supplementary invoices for sale. The Tribunal referenced the case of Karnataka Soaps & Detergents Ltd. vs. Commissioner of Central Excise, Mysore, which held that the prohibition on availing credit on supplementary invoices applies only in cases of sale and not stock transfers.

The Tribunal concluded that since the appellant captively consumed the goods and there were no allegations of fraud or wilful mis-statement, Rule 9(1)(b) did not apply. The Tribunal also distinguished the case from Supreme Petrochem Ltd. vs. Commissioner of Central Tax & Central Excise, where the Show Cause Notice had alleged wilful mis-statement and suppression of facts.

Conclusion:
The Tribunal found no reason to apply Rule 9(1)(b) of the CENVAT Credit Rules, 2004, and set aside the impugned order, allowing the appeal with consequential relief as per law. The demand for recovery of credit was deemed unsustainable.