2017 (2) TMI 833 - AT - Central Excise

Tribunal rules on CENVAT Credit eligibility for daughter stations, limits on demand notices, penalties set aside

The tribunal held that the daughter stations could not be considered as manufacturing premises or factory, therefore capital goods and inputs used there ... Cenvat credit - Capital goods and input at service station - No centralised registration - Penalty - Rule 15(2) of CER, 2004 - Time limitation - Held that: - In the present case the appellant could not bring out any particular rule of Cenvat Credit Rule,2004 in which the defined expressions input and capital goods be read differently in the context of the said Rule - The principal criteria for eligibility to CENVAT Credit on inputs rests on its use in or in relation to manufacture of final products in the factory and for capital goods its use in the factory of production. The learned Advocate has also submitted that they have applied for centralized registration way back in 2005, which was to them allowed to them pursuant to issuance of Notification No.43/2008CE(NT) dt. 06.10.2008 It is his contention that the said notification is retrospective in nature and accordingly, the Appellants are eligible to avail CENVAT Credit of inputs/capital goods at their daughter stations. On going through the said notification and the Circular no. 875/13/2008-CX dt. 16.10.2008 issued in this regard we find that though centralized registration was allowed, but it is specifically mentioned that provisions governing eligibility to claim the CENVAT Credit would be applicable as earlier. The issue of eligibility of CENVAT Credit on input service where the Input service distributor is not registered has been settled by the Gujrat High Court in the case of CCE Vs. Dashion Ltd. [2016 (2) TMI 183 - GUJARAT HIGH COURT] - it is clear that to avail input service credit, the registration of head office/registered office is not mandatory, however, it is necessary to ascertain the documents on which these units had availed credit as there have been claims and counter claims - In the Departments contention, all relevant documents on which input service CENVAT credit availed, had not been placed before the adjudicating authority, whereas, the claim of the appellant is that the relevant input service invoices were submitted before the authorities in September 2007. Hence, in our opinion, to verify the claim, it is necessary to remit the case for verification of the documents. It cannot be denied that the issue of eligibility of CENVAT credit on capital goods inputs and input services availed at various daughter stations, from where the CNG was ultimately cleared/sold during the course of pendency of application for centralised registration, rests on interpretation of the relevant provisions of law and all facts had been disclosed to the department - Hence, imposition of equivalent penalty on the appellant under rule 15(2) of Cenvat Credit Rules,2004 read with section 11AC of Central Excise Act,1944 is unsustainable in law - Appeal disposed of. Issues Involved:1. Eligibility of CENVAT Credit on capital goods, inputs, and input services used at daughter stations.2. Definition and interpretation of 'place of removal' and 'factory' in the context of CENVAT Credit Rules.3. Applicability of the extended period of limitation for issuing demand notices.4. Imposition of penalties and confiscation of goods.Detailed Analysis:1. Eligibility of CENVAT Credit on Capital Goods, Inputs, and Input Services Used at Daughter Stations:The appellants argued that since the compressed natural gas (CNG) is dispensed at daughter stations, these stations should be considered as the place of removal, making the capital goods, inputs, and input services used there eligible for CENVAT Credit. They contended that the process of compression, which is deemed as manufacture, continues until the gas is dispensed into vehicles. However, the tribunal referred to the definition of capital goods and inputs under the CENVAT Credit Rules, 2004, which necessitates that these goods must be used in the factory of the manufacturer. The tribunal relied on the precedent set in the Mahanagar Gas Ltd. case, which concluded that the daughter stations could not be considered as manufacturing premises or factory, and thus, the capital goods and inputs used there are not eligible for CENVAT Credit.2. Definition and Interpretation of 'Place of Removal' and 'Factory':The appellants argued that the definition of 'place of removal' under Section 4 of the Central Excise Act, 1944, should be considered in determining the eligibility for CENVAT Credit. They claimed that the place of removal should include daughter stations where the CNG is sold. However, the tribunal found that the definition of 'place of removal' is significant for determining the assessable value and levy of duty on finished goods and does not extend to the definitions of input and capital goods under the CENVAT Credit Rules. The tribunal emphasized that the definitions of input and capital goods do not include the place of removal, and thus, the argument does not hold.3. Applicability of the Extended Period of Limitation for Issuing Demand Notices:The tribunal examined the timeline of the demand notices and the appellants' communication with the department. For Appeal No. E/754/2008, the demand notice was issued within the normal period of limitation. For Appeal No. E/1788-1790/2008, the tribunal found that the appellants had informed the department about their intention to avail CENVAT Credit and had furnished necessary information, making the extended period of limitation inapplicable. The tribunal concluded that the second demand notice issued in May 2009 was barred by limitation as the appellants had already submitted detailed information to the department.4. Imposition of Penalties and Confiscation of Goods:The tribunal found that the issue of eligibility for CENVAT Credit rested on the interpretation of relevant provisions of law, and all facts had been disclosed to the department. Thus, the imposition of equivalent penalties under Rule 15(2) of the CENVAT Credit Rules, 2004, read with Section 11AC of the Central Excise Act, 1944, was unsustainable. The tribunal also set aside the confiscation of capital goods and inputs at daughter stations and the personal penalty imposed on the authorized signatory.Summary of Findings:1. CENVAT Credit of Rs. 3,15,78,544/- in Appeal No. E/754/2008 is not admissible. Interest is applicable, but the penalty is set aside.2. The demand of Rs. 59,23,395/- on capital goods and Rs. 53,39,566/- on inputs to be re-worked for the normal period of limitation. Eligibility of CENVAT Credit on input services of Rs. 77,03,649/- to be examined. The equivalent penalty and confiscation of goods are set aside. The demand of Rs. 45,24,039/- on input services is set aside on the ground of limitation. The personal penalty on Shri Dharmesh Parekh is also set aside.The respective orders are modified to the above extent, and the appeals are disposed of accordingly.