2024 (7) TMI 265 - AT - Central Excise

Captive exemption - Fatty Acid Pitch (FAP) - Benefit of N/N. 67/95-CE dt.16.03.1995 - FAP emerging as an intermediate product but otherwise excisable in the factory of the Appellants - manufacturing both dutiable goods as well as non-dutiable goods - Rule 6(3A) of Cenvat Credit Rules - extended period of limitation. HELD THAT - The Adjudicating Authority has made certain conclusions based on the purported observations made by the Audit team as regards the factual position of presence of boilers and there having no clear cut demarcation for its use in the manufacture of dutiable and exempted products. The SCN, is referring to some observations of Audit team without referring to any Audit memo or report based on any factual verification done by the Audit team or subsequently by the Department and is merely relying upon two letters from the Appellants themselves. The Adjudicating Authority has presumed that the Appellants have not been able to bring any evidence to the effect as to from where they were getting steam for the manufacture of exempted goods and because of that, it was reasonably postulated by him that FAP was used as fuel in one of the boilers, which in turn produces steam and which in turn was used in the manufacture of certain exempted final goods. Despite the Appellants making repeated claims about the FAP not being used for any exempted goods and furnishing all the relevant details to the Department, no further enquiry or investigations were carried out to crosscheck as to whether Appellant s assertions were correct or otherwise. In fact, they have gone a step further by invoking the extended period also, even though there is no evidence on record to establish that the FAP has been used for manufacture of exempted product and that it was done deliberately and intentionally to evade payment of duty. In fact, the Appellants themselves have informed the Department about their intended use way back in 2007 itself and till the issue of SCN in 2012 no verification was carried out to prove to the contrary by the Department. There is no cogent verifiable evidence on the record to suggest that FAP was used in the manufacture of exempted products also and therefore, liable to duty by denying the benefit of N/N. 67/95-CE. - In the absence of any categorical evidence from the Department to the effect that steam generated by FAP through the boiler was used in the manufacture of any of the exempted products, the conclusions drawn by the Adjudicating Authority in the impugned order is not legally tenable. Merely because they could not adduce evidence as to where they got steam for exempted product, it cannot lead to conclusion that FAP was used in boiler and steam so generated was used for manufacture of such products. In the absence of any detailed inquiry/investigation rebutting the factual assertions of the Appellant, Department could not have relied inherently on letters sent by Appellant themselves and some vague observations of Audit team, Report of which has not been even relied upon in SCN. Extended period of limitation - HELD THAT - There is sufficient evidence on record that Appellants have not tried to hide anything from the Department and in fact were furnishing all the relevant information as required by the Department from time to time and in fact making categorical assertions about not having used FAP in manufacturing of exempted products. There is nothing on record to suggest that any of these assertions were found to be wrong on inquiry or investigation by the Department. Therefore, in the facts of the case, invocation of extended period is also bad in law. Both on account of merits as well as on limitation, the impugned order is not sustainable and is set aside - appeal allowed.

Issues Involved:
1. Eligibility for exemption under Notification No. 67/95-CE for Fatty Acid Pitch (FAP) used captively.
2. Compliance with Rule 6(3A) of Cenvat Credit Rules.
3. Validity of the demand and penalty imposed.
4. Grounds of limitation and extended period of demand.

Detailed Analysis:

1. Eligibility for exemption under Notification No. 67/95-CE for Fatty Acid Pitch (FAP) used captively:

The primary issue is whether the Appellant is entitled to the benefit of Notification No. 67/95-CE for FAP used as fuel in generating steam within their factory. The Department contended that FAP was used to produce steam for both dutiable and exempted goods, thus disqualifying it from the exemption. The Appellant argued that FAP was used exclusively in a thermic fluid heater for manufacturing dutiable goods like Stearic Acid and Fatty Acids.

The Commissioner observed that the Appellant failed to demonstrate that the energy produced by FAP was used exclusively for dutiable goods. The Appellant's defense was that they utilized a thermic fluid heater, not a boiler, to generate heat energy for dutiable goods. However, the Commissioner found this claim unsubstantiated due to a lack of clear demarcation between the sources of steam for dutiable and exempted goods.

2. Compliance with Rule 6(3A) of Cenvat Credit Rules:

The Department concluded that the Appellant did not fulfill the obligations under Rule 6(3A) of the Cenvat Credit Rules, which led to the denial of the exemption. The Appellant argued that the Department did not verify their claims and relied on assumptions. They maintained that the burden of proof lay with the Department to show that FAP was used for exempted goods.

3. Validity of the demand and penalty imposed:

The Commissioner confirmed the demand of Rs. 56,41,187/- and imposed an equal penalty under Section 11AC of the Central Excise Act. The Appellant contested this on the grounds that the order was based on assumptions without concrete evidence. They cited various case laws to support their argument that the Department's reliance on their own letters without verification was insufficient for such a demand.

4. Grounds of limitation and extended period of demand:

The Appellant argued that the demand was time-barred as they had informed the Department about the usage of FAP for dutiable products as early as 2007. They contended that the Department did not raise any objections or conduct any inquiries at that time, making the invocation of the extended period unjustified. The Appellant relied on case laws to assert that the extended period could not be invoked without evidence of deliberate evasion of duty.

Judgment:

The Tribunal found that the Department did not provide verifiable evidence to prove that FAP was used for manufacturing exempted goods. The SCN was based on assumptions and the Appellant's own letters, without any factual verification by the Department. The Tribunal noted that the Appellant had consistently informed the Department about the usage of FAP and provided all necessary details, which were not contested or verified by the Department.

The Tribunal concluded that the demand and penalty were not sustainable on merits and were also time-barred. The Appellant's assertions were not disproven by any investigation, and the extended period of demand was unjustified. Consequently, the Tribunal set aside the impugned order and allowed the appeal with consequential benefits.

Conclusion:

The Tribunal allowed the appeal, setting aside the demand and penalty imposed by the Commissioner, and ruled in favor of the Appellant on both merits and limitation grounds. The Appellant was granted consequential benefits as per law.

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