2019 (9) TMI 1051 - AT - Central Excise

Tribunal Overturns Denial of Cenvat Credit and Duty Demand Due to Lack of Evidence

The Tribunal set aside the denial of Cenvat credit on the ground of manufacturing activity, citing precedent that if the final product is cleared on ... CENVAT Credit - denied on the ground that their activity does not amounts to manufacture - HELD THAT:- Through the majority decision of the Tribunal in the case of ASIAN COLOUR COATED ISPAT LTD. VERSUS COMMISSIONER OF C. EX., DELHI-III [2014 (9) TMI 974 - CESTAT NEW DELHI], it was held that where the final product stands cleared on payment of duty, the Cenvat credit availed by the assessee cannot be denied on the ground that the activity was not covered by the definition of manufacture - there is no justification for confirmation of said demand. Clandestine removal - demand solely based upon the duty paid by the appellant on the scrap arisen in their factory - HELD THAT:- Since the appellant was manufacturing their final products of different variety i.e. stainless steel, alloys steel as also non alloy steel, scrap of different verities originated at the various stages and was collected and sold as stainless scrap at the higher rate, so as to avoid any objection by the revenue. He submits that on the said basis it cannot be concluded that the appellants have clandestinely manufactured their final product of stainless steel only - also, revenue has not advanced any evidence like the procurement to raw material, the actual manufacture of goods of stainless steel and clearance of the same to the buyers, who had not been identified, the transportation of the goods or receipt of consideration. Confirmation of such huge demand of duty on the basis that the scrap sold by the appellant which was actually mixed scrap, by applying the rate of duty as applicable to stainless steel scrap, is against the settled principal of law that the allegations and findings of clandestine removal are required to be upheld on the basis of sufficient, affirmative and tangible evidences for which the onus lies upon the revenue. There is not even an iota of evidence on record to that effect - demand set aside. CENVAT credit - furnace oil - HELD THAT:- It stands explained before us that Heat treatment & preheating furnace, furnish oil is being used by the assesse, which stand has not been rebutted by revenue by production of any evidence to contrary - demand not sustainable. Extended period of limitation - HELD THAT:- The audit took place in the appellant’s factory during the period 23rd August, 2013 to 26 August, 2013 whereas show cause notice stand issued on 19.02.2015 i.e. after the normal period of limitation - the notice is also barred by limitation. Appeal allowed on merits as well as on limitation. Issues:1. Denial of Cenvat credit on the ground of manufacturing activity.2. Demand of duty based on alleged clandestine removal.3. Denial of Cenvat credit on furnace oil usage.4. Limitation period for issuing show cause notice.Analysis:Issue 1: Denial of Cenvat credit on the ground of manufacturing activityThe appellants were engaged in manufacturing Forged Blanks of stainless steel and alloy steel, as well as flanges of non-alloy steel and stainless steel. The show cause notice proposed denial of Cenvat credit and duty demand, alleging that the appellants' activities did not amount to manufacturing. The Commissioner's order confirmed the denial of Cenvat credit. However, the Tribunal referred to the case of Asian Color Coated Ispat Ltd. Vs Commissioner of Central Excise, where it was held that if the final product is cleared on payment of duty, the Cenvat credit cannot be denied based on manufacturing activity. The Tribunal found no justification for confirming the demand, ultimately setting aside the denial of Cenvat credit.Issue 2: Demand of duty based on alleged clandestine removalA demand of Rs. 84.29 lakhs was confirmed based on allegations of clandestine removal, primarily relying on duty paid by the appellants on scrap. The appellants argued that they manufactured final products of different varieties, and the scrap collected and sold as stainless scrap was to avoid revenue objections. The Tribunal noted the lack of evidence provided by the revenue regarding raw material procurement, actual manufacture, clearance to buyers, transportation, or consideration receipt. The Tribunal emphasized that allegations of clandestine removal require tangible evidence, which was absent in this case. Consequently, the Tribunal set aside the demand based on clandestine removal.Issue 3: Denial of Cenvat credit on furnace oil usageA portion of the demand amounting to Rs. 84,097 was confirmed by denying Cenvat credit on furnace oil usage. The adjudicating authority claimed that since the appellants had a pipeline for CNG supply, there was no need for furnace oil usage. However, the appellants explained that furnace oil was used for specific purposes like heat treatment, which was not rebutted by the revenue with contrary evidence. The Tribunal found the demand unsustainable due to lack of evidence against the appellants' explanation.Issue 4: Limitation period for issuing show cause noticeThe show cause notice was issued after 22 months from the audit conducted, which exceeded the normal limitation period. Citing a judgment by the Hon'ble Allahabad High Court, the Tribunal held that the notice issued after the normal limitation period was barred by limitation as per Section 11A of the Central Excise Act. Consequently, the Tribunal ruled that the notice was also barred by limitation, leading to the setting aside of the impugned order and allowing the appeal with consequential relief to the appellant on both merits and limitation.