2019 (1) TMI 246 - AT - Central Excise

Tribunal rejects Cenvat credit demand, rules in favor of appellant

The Tribunal held that the demand for Cenvat credit on inputs used in exported goods was not sustainable as the appellant had already claimed and received ... Demand of Cenvat Credit - adjudicating authority has demanded the cenvat credit lying in balance as on 01.04.2008 - Rule 11(3) of Cenvat Credit Rules, 2004 - time limitation - Held that:- As per the facts of the present case, though on 01.04.2008 and unutilized cenvat credit of ₹ 9,64,05,566/- was lying but out of the said amount of ₹ 8,57,60,788/- was related to the inputs used in the manufacture of exported goods. The appellant claimed refund under Rule 5 for the said amount and the department has sanctioned that refund, the issue of refund has attained finality. Therefore, as regard this amount of ₹ 8,57,60,788/- which included in overall demand amount has been allowed by the department as refund. In the such case demand for this particular amount cannot be raised otherwise it will amount to review of refund sanction order. The adjudicating authority ignoring all the provision of Rule 6(6), demanded cenvat credit lying in balance as on 01.04.2008 invoking Rule 11(3) in isolation which is absolutely illegal and incorrect. Reversal of cenvat credit while claiming Exemption from duty - unutilized cenvat credit - credit is related to input service credit and capital goods. From the plain reading of Rule 11(3), it is clear that the provision of reversal of the credit is provided only in respect of inputs and not on input service and capital goods. The provision for lapsing of credit provided in Clause (ii) of Rule 11(3), the principle of ejusdem generis shall apply, accordingly, credit related to capital goods and input services shall not lapse, therefore, the unutilized cenvat credit lying in balance related to capital goods and input service cannot be demanded. Time limitation - Held that:- In respect of the unutilized cenvat credit, the appellant filed refund claim and the same was sanctioned by the sanctioning authority after remand by the Commissioner (Appeals), therefore, there is no suppression of fact on part of the appellant - the demand for an amount lying as on 31.03.2008, an SCN should have been issued within 1 year whereas the SCN was issued on 06.05.2009 which is clearly beyond the normal period of one year, hence the same is time bar. Appeal allowed - decided in favor of appellant. Issues Involved:1. Eligibility of Cenvat Credit on inputs used in exported goods.2. Applicability of Rule 11(3) of Cenvat Credit Rules, 2004.3. Reversal of Cenvat Credit on capital goods and input services.4. Validity of demand raised beyond the normal period of limitation.5. Imposition of penalty under Rule 15 of Cenvat Credit Rules, 2004 and Rule 25 of Central Excise Rules, 2002.Issue-wise Detailed Analysis:1. Eligibility of Cenvat Credit on inputs used in exported goods:The appellant contended that the Cenvat credit amounting to Rs. 8,57,60,788/- was related to inputs used in the manufacture of exported goods. They argued that, under Rule 6(6) of the Cenvat Credit Rules, 2004, Cenvat credit is admissible even if the final product is exempted when it is exported. The Tribunal found that the appellant had claimed a refund under Rule 5 for this amount, which was sanctioned by the department, and this issue had attained finality. Therefore, the demand for this amount could not be raised as it would amount to a review of the refund sanction order. The Tribunal emphasized that Rule 6(6) provides an exception for inputs used in exported goods, thereby allowing the Cenvat credit for such inputs.2. Applicability of Rule 11(3) of Cenvat Credit Rules, 2004:The adjudicating authority demanded the reversal of Cenvat credit lying in balance as on 01.04.2008, invoking Rule 11(3). The Tribunal noted that Rule 11(3) requires the manufacturer to pay an amount equivalent to the Cenvat credit on inputs lying in stock if the manufacturer opts for an exemption from excise duty. However, the Tribunal found that the appellant had already claimed and received a refund for the credit related to exported goods, and thus, the demand under Rule 11(3) was not applicable. Additionally, the Tribunal highlighted that Rule 6(6) allows Cenvat credit for inputs used in exported goods, which overrides the provisions of Rule 11(3).3. Reversal of Cenvat Credit on capital goods and input services:The appellant argued that the demand of Rs. 69,43,864/- related to Cenvat credit on capital goods and input services should not be reversed as Rule 11(3) only pertains to inputs. The Tribunal agreed, stating that the provision for lapsing of credit under Rule 11(3) applies only to inputs and not to capital goods and input services. Therefore, the demand for reversal of credit on capital goods and input services was not sustainable.4. Validity of demand raised beyond the normal period of limitation:The appellant contended that the SCN issued on 06.05.2009 was beyond the normal period of one year from 31.03.2008. The Tribunal found merit in this argument, noting that the appellant had already filed a refund claim, which was sanctioned after remand by the Commissioner (Appeals). There was no suppression of facts by the appellant, and thus, the demand was time-barred.5. Imposition of penalty under Rule 15 of Cenvat Credit Rules, 2004 and Rule 25 of Central Excise Rules, 2002:The Tribunal found that the adjudicating authority had erred in imposing an equal penalty on the appellant, as there was no contravention of the provisions of the Central Excise Act or the Cenvat Credit Rules with the intent to evade duty. The Tribunal noted the absence of any suppression or willful misstatement by the appellant, and thus, the imposition of penalty was not justified.Conclusion:The Tribunal concluded that the demand was not sustainable on merits and was also time-barred. The impugned order was set aside, and the appeal was allowed. The judgment emphasized the independent nature of Rule 5 from Rule 11 and the specific provisions under Rule 6(6) that allow Cenvat credit for inputs used in exported goods. The Tribunal also clarified that Rule 11(3) does not apply to capital goods and input services, and the demand raised beyond the normal period of limitation was invalid.