2015 (11) TMI 1168 - HC - Central Excise

High Court upholds Tribunal's decision on revenue neutrality in customs & excise case

The High Court of Bombay dismissed the Revenue's appeals challenging the Customs, Excise, and Service Tax Appellate Tribunal's decision. The Court upheld ... Availment of CENVAT Credit - Whether the cenvated inputs were actually exchanged between the three units without reversal of equivalent credit or the same were sold out to some other persons - allegation of clandestine removal - Revenue neutrality - Held that:- Tribunal found that once the inputs have been delivered only at the factories of the assessees from the associate companies, then no loss occurs to revenue. The assessees would derive no benefit by not reversing CENVAT credit on the inputs, when sister concerns are also eligible to take CENVAT credit. Therefore, in the absence of cogent and reliable evidence particularly on the diversion of these inputs, the Tribunal applied the doctrine or principle of revenue neutrality. - Tribunal has taken this factual position from order-in-original itself. The only procedure that was required to be complied with was clearance of the raw materials after reversing the credit availed on it. Thus, the duty amount should have been paid and thereafter when these inputs or raw materials were utilized in the manufacture of the final product, the CENVAT credit could have been claimed but this procedure was not followed. - merely because the penalty has been notionally imposed on all the assessees, does not mean that the Tribunal's earlier conclusion, and by applicability of the principle of revenue neutrality, is perverse or vitiated by any error of law apparent on the face of record. Imposition of the notional penalty is for infraction of some procedural rule - No substantial question of law arises - Decided against Revenue. Issues:Revenue neutrality doctrine application in customs and excise caseAnalysis:The High Court of Bombay addressed the appeals by the Revenue challenging the order of the Customs, Excise, and Service Tax Appellate Tribunal. The main contention was the acceptance of the Assessee's stand on revenue neutrality without sufficient evidence. The Revenue argued that there was no proof that inputs were exchanged with associate companies without reversing the CENVAT credit taken, leading to penalties imposed on the assessees. The Tribunal's orders were deemed contradictory, as accepting revenue neutrality would negate the need for penalties. The Revenue claimed that the penalties imposed rendered the Tribunal's orders unsustainable.The Respondent contended that the Tribunal properly considered the appeals filed by the assessees, including companies engaged in similar manufacturing activities with common directors and partners. The raw materials were exchanged among the entities to meet urgent needs, with CENVAT credit taken accordingly. Despite private record-keeping, no evidence suggested diversion to third parties, as confirmed by transporter records. The Tribunal accepted the revenue neutrality argument based on the lack of evidence supporting diversion, leading to the conclusion that penalties were unjustified.Upon reviewing the Tribunal's orders, the Court noted the factual association among the companies and the exchange of raw materials without formal compliance. Despite procedural irregularities, the Tribunal's decision was deemed reasonable as no revenue loss occurred due to the internal exchange of inputs. The principle of revenue neutrality was applied, considering the eligibility of sister concerns to claim CENVAT credit. The absence of concrete evidence on diversion supported the Tribunal's decision.The Court emphasized that the procedure required reversing credit on raw materials before utilization in manufacturing, which was not followed by the assessees. The failure to comply with formalities provided temporary benefits to associate companies but did not substantiate the revenue's diversion claims. The imposition of penalties was considered a procedural issue and did not impact the application of revenue neutrality.In conclusion, the Court found no substantial legal questions raised by the factual findings, leading to the dismissal of the appeals. The imposition of notional penalties did not invalidate the Tribunal's decision based on revenue neutrality, as penalties were related to procedural violations and did not affect the core issue at hand.