2014 (11) TMI 331 - AT - Central Excise

Tribunal orders pre-deposit for Cenvat Credit dispute, rules in favor of manufacturer on limitation period

The Tribunal directed the applicant, a two-wheeler manufacturer, to make a pre-deposit of 10% of the total demand due to ineligibility to distribute ... Waiver of pre deposit - Distribution of CENVAT Credit relating to exempted unit availing area based exemption - Held that:- at Pantnagar unit of applicant is manufacturing some exempted goods. As per Rule 7(b) of the Cenvat Credit Rules, 2004, it is clear that credit of service tax is attributable to service used by any unit exclusively engaged in the manufacture of exempted goods or for providing exempted services shall not be distributed. Therefore, whatever credit is attributable to exempted goods may not be distributed by the applicant. In these circumstances, applicants have failed to make out a case of complete waiver of pre-deposit. - Partial stay granted. Issues: Waiver of pre-deposit of confirmed amount, distribution of Cenvat Credit, invocation of extended period of limitation.Waiver of Pre-deposit:The applicant sought waiver of pre-deposit of a substantial amount along with interest and penalty confirmed in the impugned order. The case involved the applicant, a manufacturer of two-wheelers, distributing Cenvat Credit among its units, including one availing area-based exemption. The CERA Audit revealed that the applicant was not entitled to avail Cenvat Credit attributable to exempted goods manufactured at the unit availing exemption. The applicant contended that the distribution was permissible under Rule 7(b) of the Cenvat Credit Rules 2004, citing relevant case law. The department opposed, stating that credit attributable to exempted goods cannot be distributed. The Tribunal found that credit attributable to exempted goods could not be distributed, leading to a directive for the applicant to make a pre-deposit of 10% of the total demand, with the balance amount waived upon compliance.Distribution of Cenvat Credit:The dispute centered around the distribution of Cenvat Credit by the applicant, particularly concerning the unit availing area-based exemption. The department argued that credit attributable to exempted goods could not be distributed as per the Cenvat Credit Rules. The Tribunal concurred, emphasizing that credit linked to exempted goods cannot be distributed among units engaged in manufacturing such goods. This finding influenced the decision regarding the waiver of pre-deposit and the amount to be paid by the applicant.Invocation of Extended Period of Limitation:The applicant contested the invocation of the extended period of limitation, asserting that the department was aware of the credit distribution since 2007. The Tribunal acknowledged the contention, finding merit in the argument that the extended period was not applicable. Consequently, the demand pertaining to the normal period of limitation was calculated at a specific amount, leading to the directive for pre-deposit and subsequent waiver upon compliance.This judgment delves into the nuances of Cenvat Credit distribution, the implications of manufacturing exempted goods, and the applicability of the extended period of limitation in tax matters. The Tribunal's decision underscores the importance of adhering to the prescribed rules governing credit distribution and highlights the significance of timely compliance with tax obligations to avoid penalties and interest.