2020 (1) TMI 378 - AT - Central Excise

Tribunal grants Cenvat credit, sets aside penalties, and rules demand time-barred.

The Tribunal allowed the appeals, setting aside the impugned order and granting the appellant consequential benefits. The appellant was entitled to Cenvat ... CENVAT credit - capital goods - capital goods used in the manufacture of dutiable cotton/ denim fabric - capital goods used in the manufacture of Cotton yarn - Rule 6(4) of CCR - Cotton yarn cleared on payment of duty - documentary evidence to prevail over oral evidence - Execution of bond not required in case of export of exempt goods. In any case, it is only a procedural requirement - Cotton yarn captively consumed in manufacture of dutiable denim fabric, as well as cleared on payment of duty - eligible documents under Rule 9(1) of the Credit Rules - Extended period of limitation - interest - penalty. HELD THAT:- The receipt and installation of the capital goods, on which cenvat credit is objected, is not disputed. As regards the error in the address of the particular unit of the assessee company is concerned, this is not a good reason for rejection of the cenvat claim as the invoice is in the name of the appellant company only, and subsequently they have got the error rectified by the supplier of the capital goods. Further, it is not disputed that the machinery in question although being used for manufacture of cotton yarn and cotton fabrics is also capable for manufacturing PV yarn, as certified by the manufacturers / supplier of the machinery. Further, the fact of export is not disputed of the cotton yarn /fabrics, which were removed from the factory without payment of duty and were exported. Even if the capital goods have been partially used for manufacture of dutiable goods or on payment of duty or have been exported (which amounts to removal of goods on payment of duty), the appellant is entitled to cenvat credit on the capital goods in question. The special procedure for removal of dutiable goods under Rule 19 of Cenvat Credit Rules read with Notification No. 42/2001-CE is not applicable for removal of exempt goods for export. As the said Rule, read with notification are only for the purpose of safeguarding the interest of Revenue. Further, Rule 6(4) of Cenvat Credit Rules as substituted w.e.f. 01.04.2016, provides that no cenvat credit shall be allowed on capital goods used exclusively in the manufacture of exempted goods for a period of two years from the date of commencement of commercial production. The appellant fulfils the criteria for availing cenvat credit on capital goods under Rule 3 read with Rule 9(1) of Cenvat Credit Rules, 2004 - under the facts and circumstances, the provision of Rule 6(4) of Cenvat Credit Rules are not attracted, as Rule 6(6)(v) provides that the provision of sub rule (4) shall not be applicable in case the excisable goods removed without payment of duty, are cleared for export under bond in terms of provisions of Central Excise Rules, 2002. As part of the export has taken place under bond ‘LUT’ and certain other consignment have been exported without executing ‘LUT’, claiming the goods as exempted under Notification No. 30/2004, in any case it is settled principle of law that only the goods are exported from the country and not the taxes. The Central Excise law provides for clearance of goods for export, either under bond in which case the terminal excise duty is not paid at the time of clearance from the factory, but in the terms of the bond the manufacturer is obligated to export the goods and get the bond discharged - As the export of goods is not doubted, this Tribunal is of the view that the benefit of Rule 6(6)(v) is required to be extended to the appellant. Accordingly, it is held that the appellant manufacturer is entitled to cenvat credit on capital goods, used partially for export even though domestic clearance are exempt. The appellant is entitled to cenvat credit on the capital goods in question - Appeal allowed - decided in favor of appellant. Issues Involved:1. Denial of Cenvat credit on capital goods.2. Penalty imposition on the appellant company and its directors.3. Allegation of sham transactions for availing Cenvat credit.4. Compliance with procedural requirements for export under Rule 19 of the Central Excise Rules.5. Invocation of extended period of limitation for demand.6. Admissibility of Cenvat credit on capital goods based on the address discrepancy in invoices.Issue-wise Detailed Analysis:1. Denial of Cenvat Credit on Capital Goods:The appellant contested the denial of Cenvat credit on capital goods used in the manufacture of cotton/denim fabric and cotton yarn. The Tribunal held that even if capital goods are predominantly used for manufacturing exempted goods, the restriction under Rule 6(4) of the Cenvat Credit Rules does not apply if some goods are cleared on payment of duty. The Tribunal cited precedents where minimal dutiable clearances were sufficient to claim Cenvat credit. Additionally, the Tribunal recognized that the appellant exported cotton yarn, making Rule 6(4) inapplicable under Rule 6(6)(v).2. Penalty Imposition on the Appellant Company and its Directors:The Tribunal found that the penalties imposed on the appellant company and its directors under Rule 26 of the Central Excise Rules were not sustainable. The Tribunal reasoned that the demand itself was not legally sustainable, and no evidence was provided to prove that the individuals dealt with goods liable for confiscation with knowledge of their liability. The penalties were set aside.3. Allegation of Sham Transactions for Availing Cenvat Credit:The Tribunal agreed with the adjudicating authority that the transactions showing the removal of cotton yarn on payment of duty to M/s Sai Leela Synthetics Pvt. Limited were sham transactions. However, the Tribunal held that the appellant was still entitled to Cenvat credit on capital goods used partially for manufacturing dutiable goods or goods cleared for export.4. Compliance with Procedural Requirements for Export under Rule 19:The Tribunal held that the special procedure for removal of dutiable goods under Rule 19 of the Central Excise Rules, read with Notification No. 42/2001-CE, is not applicable for the removal of exempt goods for export. The Tribunal emphasized that under the Central Excise law, goods can be cleared for export either under bond or by paying duty and claiming a rebate. The Tribunal recognized that the appellant exported goods without executing a bond, considering them exempt under Notification No. 30/2004-CE, and this did not invalidate the export status of the goods.5. Invocation of Extended Period of Limitation for Demand:The Tribunal found that the demand for the period up to April 2015 was time-barred, as the show cause notice was issued on 17.03.2017. The Tribunal noted that all relevant information was available to the department during audits, and there was no suppression of facts by the appellant. Consequently, the extended period of limitation was not invocable.6. Admissibility of Cenvat Credit on Capital Goods Based on Address Discrepancy in Invoices:The Tribunal held that the discrepancy in the address on the invoices was not a valid reason for denying Cenvat credit. The Tribunal noted that the invoices were in the name of the appellant company, and the error was subsequently rectified. The Tribunal emphasized that substantive benefits should not be denied for procedural infractions, and the appellant had provided evidence of the physical receipt of capital goods.Conclusion:The Tribunal allowed the appeals, setting aside the impugned order and granting the appellant consequential benefits. The Tribunal emphasized that the appellant was entitled to Cenvat credit on capital goods used for manufacturing dutiable goods or goods cleared for export, even if some clearances were exempt. The penalties imposed on the appellant company and its directors were also set aside.