2023 (2) TMI 7 - AT - Central Excise

Tribunal rules in favor of appellant, setting aside CENVAT credit disallowance decision

M/s. Covestro (India) Private Limited Versus Commissioner of G.S.T. and Central Excise, Tiruchirappalli

The Tribunal set aside the Commissioner's decision to disallow CENVAT credit and recovery, ruling in favor of the appellant. The Tribunal emphasized the ... Recovery of CENVAT Credit - it is alleged that the excess credit alleged to have been availed could not be recovered from the recipient unit - revenue neutral situation - time limitation - Rules 3 and 7 of the CCR, 2004 - HELD THAT:- The lower authorities have pressed into service Rules 3 and 7 of the CCR, 2004 to disallow and recover the CENVAT Credit availed by the recipient-appellant unit, but however, when the audit took place at the Head Office unit, which is the ISD unit, nothing is placed on record as to whether any Show Cause Notice was issued to the said unit which chose to distribute (to which Rule 7 of the CCR applies) alleging that the distribution by the ISD was wrong. There is also nothing brought out on record if the appellant, being a recipient unit, had any role or influence in the manner of distribution so that a case of wilful suppression with an intention to evade payment of duty, etc., could be justified. When the appellant took consistent stand inter alia that its Head office-ISD unit was regularly filing its ER-1 return, that the service provider unit at Head Office had Service Tax liability every year, which was paid in cash and that the entire tax liability was paid in cash every year rather than paying through the CENVAT Credit, the lower authorities have not denied anywhere the facts - this is clearly a revenue neutral situation since there is no Revenue loss at all to the Government and hence, the question of wilful suppression, that too with an intent to evade payment of tax, etc., would never arise. Time Limitation - HELD THAT:- It is the settled position of law that the Show Cause Notice in the case on hand has been served beyond the normal period, for which the only allegation levelled is wilful suppression with an intent to evade tax, but however, no supporting document/evidence is placed on record to justify suppression by the appellant, who is only a recipient, and consequently, the demand also cannot sustain being hit by time-bar - It is clear from the facts as borne out of the records and also as forthcoming from the orders of lower authorities that a mere allegation has been made as to the wilful suppression with an intent to evade tax which, if considered for the sake of arguments, may at the most justify invoking the extended period of limitation. But in any case that alone is not sufficient since the Department has to prove that there is a revenue loss to the exchequer. The disallowance of CENVAT Credit in the hands of the recipient-appellant, as confirmed in the impugned order, is incorrect and not sustainable in the eye of law - Appeal allowed. Issues: Disallowance of input credit and recovery upheld by the Commissioner of Customs and Central Excise (Appeals) - Whether correct or notRs.Analysis:The appellant, engaged in manufacturing excisable goods, availed credit under the CENVAT Credit Rules, 2004, including Input Service Distributor (ISD) credit. A Show Cause Notice alleged the appellant had availed excess ineligible CENVAT Credit, contravening Rules 3 and 7 of the CCR, 2004, resulting in a proposal for recovery. The appellant disputed the allegations, claiming a revenue-neutral situation due to cash payment of Service Tax by the ISD unit. The lower authorities upheld the disallowance and recovery, disregarding appellant's contentions and relevant legal precedents cited. The appellant's consistent stand on tax payments and lack of revenue loss indicated a revenue-neutral scenario, negating wilful suppression to evade tax.The Tribunal noted that the audit did not reveal any Show Cause Notice issued to the ISD unit for alleged incorrect distribution, nor evidence of appellant's involvement in the distribution process. Citing precedents, the Tribunal emphasized that the rejection of CENVAT credit was unsustainable in a revenue-neutral scenario where tax liabilities were discharged in cash. Legal judgments highlighted that recovery demands cannot be raised at the recipient's end and time-barred demands based on wilful suppression require supporting evidence, absent in this case. The Tribunal concluded that the disallowance of CENVAT Credit was incorrect and unsustainable in law due to the absence of revenue loss and insufficient evidence of suppression, setting aside the impugned order and allowing the appeal with consequential benefits as per law.In summary, the Tribunal's detailed analysis focused on the lack of evidence supporting wilful suppression, the revenue-neutral nature of the transactions, and the legal precedents emphasizing the recipient's non-liability for recovery. The decision highlighted the importance of substantiating allegations with evidence and ensuring compliance with legal principles in matters of CENVAT Credit disallowance and recovery.