2018 (2) TMI 208 - AT - Central Excise

Tribunal Upholds Cenvat Credit Recovery, Sets Aside Penalty

The Tribunal partly allowed the appeal, upholding the recovery of cenvat credit amount but setting aside the penalty imposed on the appellant. The dispute ... CENVAT credit - capital goods directly sent to the job worker - Held that: - The provisions of Cenvat Credit Rules which are in dispute are very clear. No doubt, there is beneficial provision available which allows for input or input services to be received directly by the job worker and credit thereof to be taken by the manufacturer of the final product / provider of output service. However, the law does not allow for taking such credit when the capital goods are similarly received directly at the job worker's end - The permission accorded under Rule 4 (5) (a) or for that matter, the permission to operate under N/N. 214/86-CE is only to facilitate movement of capital goods to the job worker for manufacture of intermediate / final products - the order of recovery of cenvat credit amount ₹ 93,04,021/- along with interest thereon. Penalty - Held that: - the entire manner of job work got done by the appellant was within the knowledge of the department - there is also no allegation that the goods, though received directly at the job worker's end, were not used for the purpose they were intended, or for that matter, that they were not returned back to the appellant etc. - penalty set aside. Appeal allowed in part. Issues:1. Interpretation of Rule 3(1) of Cenvat Credit Rules, 2004 regarding availing cenvat credit on capital goods sent to job worker.2. Validity of permission granted by jurisdictional Central Excise authorities for taking cenvat credit on capital goods.3. Application of case laws in support of availing cenvat credit on capital goods.4. Dispute regarding the date of re-credit for the purpose of issue of show cause notice.5. Imposition of penalty under Section 11AC of the Act.Analysis:Issue 1: Interpretation of Rule 3(1) of Cenvat Credit RulesThe case involved a dispute regarding the interpretation of Rule 3(1) of the Cenvat Credit Rules, 2004, which allows manufacturers to take cenvat credit on duties paid on inputs or capital goods received in the factory of manufacture. The appellant availed cenvat credit on capital goods sent to a job worker, leading to proceedings initiated by the department. The Tribunal held that the law does not permit availing such credit when capital goods are directly received at the job worker's end. The contention that permission under Rule 4(5)(a) allowed for credit on capital goods was deemed misconceived.Issue 2: Validity of permission for taking cenvat creditThe appellant argued that they had obtained permission from the Central Excise authorities to take cenvat credit on capital goods sent to the job worker. However, the Tribunal clarified that permissions under Rule 4(5)(a) or Notification No.214/86-CE were meant for facilitating the movement of capital goods but did not authorize the availing of cenvat credit on capital goods received directly at the job worker's end.Issue 3: Application of case lawsThe appellant cited various case laws to support their claim for availing cenvat credit on capital goods sent to the job worker. However, the Tribunal found these case laws irrelevant to the current issue and stated that they would not assist the appellant in their case.Issue 4: Dispute over the date of re-creditThere was a dispute over the date of re-credit for the purpose of issuing a show cause notice. The appellant argued that the date of first credit should be considered, which would make the notice beyond the limitation period. However, the Tribunal did not accept this argument and upheld the department's decision on the relevant date for issuing the notice.Issue 5: Imposition of penaltyRegarding the imposition of a penalty under Section 11AC of the Act, the Tribunal found that while the appellant had deviated from the prescribed procedure, there was no suppression of facts or misuse of credit. Therefore, the penalty was deemed excessive and set aside, granting relief to the appellant on this aspect.In conclusion, the Tribunal partly allowed the appeal, upholding the recovery of cenvat credit amount but setting aside the penalty imposed on the appellant.