2022 (8) TMI 825 - AT - Central Excise

Appellant entitled to Cenvat Credit pre-amendment rule, Show Cause Notice time-barred without evidence of intent.

M/s. SHREE FLAVOURS LLP Versus Commissioner Central Tax (CE & GST), New Delhi

M/s. SHREE FLAVOURS LLP Versus Commissioner Central Tax (CE & GST), New Delhi - TMI ISSUES PRESENTED and CONSIDEREDThe core legal questions considered in this judgment are:
Whether the appellant was entitled to avail Cenvat Credit under Rule 7C of the Cenvat Credit Rules, 2004, given the nature of the service received and the products manufactured.
Whether the amendment to Rule 7C effective from 01.04.2016 applies to the period in question (2014-2016).
Whether the invocation of the extended period of limitation for issuing the Show Cause Notice (SCN) was justified.
ISSUE-WISE DETAILED ANALYSIS1. Entitlement to Cenvat Credit under Rule 7C
Relevant Legal Framework and Precedents: Rule 7C of the Cenvat Credit Rules, 2004, governs the distribution of Cenvat Credit by an Input Service Distributor (ISD). The rule underwent an amendment effective from 01.04.2016, changing the permissive 'may' to the mandatory 'shall' in terms of distribution. Court's Interpretation and Reasoning: The Court noted that prior to the amendment, Rule 7C allowed discretion to the ISD in distributing credit. The amendment, not applicable to the period in question, mandates distribution but does not alter the fundamental nature of the rule concerning service attribution. Key Evidence and Findings: The appellant was manufacturing Kiwam, an essential ingredient for the final product, chewing tobacco, manufactured by another unit of the ISD. The ISD engaged sales agents for promoting chewing tobacco, and the credit was distributed based on turnover. Application of Law to Facts: The Court found that since Kiwam is an integral part of the final product, the input service credit related to sales promotion could be distributed to the appellant's unit. The decision referenced Piramal Glass Pvt. Ltd. and Rajasthan Patrika Pvt. Ltd., supporting the distribution of common input services credit. Treatment of Competing Arguments: The Department argued that the service was not used by the appellant's unit and thus credit should not be distributed. The Court rejected this, emphasizing the interconnectedness of the manufacturing process and the permissive nature of the pre-amendment rule. Conclusions: The Court concluded that the appellant was entitled to the Cenvat Credit as the service was used for the final product of the ISD, and the pre-amendment rule permitted such distribution.
2. Applicability of the Amended Rule 7C
Relevant Legal Framework and Precedents: The amendment to Rule 7C effective from 01.04.2016 introduced mandatory distribution of credit by using 'shall' instead of 'may.' Court's Interpretation and Reasoning: The Court held that the amendment was not applicable to the period in question (2014-2016) as the demand period concluded before the amendment took effect. Conclusions: The amendment's mandatory distribution requirement could not be applied retroactively to the appellant's case.
3. Invocation of Extended Period of Limitation
Relevant Legal Framework and Precedents: The extended period of limitation can be invoked in cases of fraud, collusion, willful misstatement, or suppression of facts, as established by precedents such as ITW Signode India Ltd. and Padmini Products. Court's Interpretation and Reasoning: The Court found no evidence of suppression or misrepresentation by the appellant. The appellant regularly filed ER-1 returns and provided necessary documents during audits. Key Evidence and Findings: The SCN was issued based on audit findings, and there was no indication of intent to evade duty or any fraudulent conduct by the appellant. Application of Law to Facts: The Court noted that the Department failed to prove any positive act of suppression or misrepresentation by the appellant, thus invalidating the basis for invoking the extended period. Conclusions: The SCN was issued beyond the normal limitation period without justified grounds, rendering it time-barred.
SIGNIFICANT HOLDINGS
Core Principles Established: The judgment reinforces the principle that amendments to legal provisions cannot be applied retroactively unless explicitly stated. It also underscores the necessity of proving intent or positive acts for invoking extended limitation periods. Final Determinations on Each Issue: The appellant was entitled to Cenvat Credit as per the pre-amendment Rule 7C. The amendment effective from 01.04.2016 did not apply to the period in question. The extended period of limitation was unjustified, and the SCN was time-barred.