2023 (4) TMI 915 - AT - Central Excise

Tribunal rules in favor of appellant, sets aside cenvat credit reversal demand.

The Tribunal set aside the demand for reversal of cenvat credit and imposition of penalty, ruling in favor of the appellant. The Tribunal found that the ... Cenvat credit reversed - imposition of penalty - capital goods were used for manufacture of goods by the appellant - availment of cenvat credit by Unit-II - Extended period of limitation - HELD THAT:- The credit reversal on which has been demanded has already been reversed by the appellant and subsequently availed in Unit-I. The admissibility of said credit in Unit-I has already been decided by Tribunal in M/S EIMCO ELECON INDIA LTD. VERSUS C.C.E. & S.T. -VADODARA-I [2019 (1) TMI 173 - CESTAT AHMEDABAD] where it was held that In the instant case, before availing the cenvat credit the appellant had applied for common registration and it is seen that no response was given by the Revenue on the application for common registration made by the appellant. The said application was neither accepted nor rejected. In these circumstances, it is apparent that the appellant had sought to follow all the requirements of the cenvat credit Rules, before availing the cenvat credit. Extended period of limitation - HELD THAT:- It is also noticed that show cause notice has been issued more than 5 years after the availment of credit and therefore, is clearly beyond the limitation. Taking note of the fact that the said credit has already been reversed, there are no merit in the order, the same is set aside - appeal allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether cenvat credit on imported capital goods is admissible where the goods were installed and used in a separately identified shed/adjacent premises (Unit-II) of the same assesseee for manufacture of final products removed from the main registered unit (Unit-I). 2. Whether movement/installation of capital goods to another unit of the same manufacturer without prior permission or separate registration disentitles the manufacturer from availing/retaining cenvat credit. 3. Whether reversal and subsequent re-availment of the same credit by different units affects admissibility of credit and the validity of a subsequent demand. 4. Whether a show-cause notice issued more than five years after availment of credit is barred by limitation and whether extended period of limitation is attracted. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Admissibility of cenvat credit where capital goods were installed/used in another unit of the same manufacturer Legal framework: Cenvat/Modvat credit rules require capital goods to be used in or in relation to manufacture of dutiable final products to claim credit; procedural formalities (registration/common registration) govern unit identification. Precedent treatment: Tribunal and High Court decisions (e.g., decisions analyzing use in 'mother roll'/adjacent plants and usage for manufacture of final product) have been followed where factually the capital goods, though installed outside the principal registered factory, were held to be part of the manufacturing process and credit was allowed. Interpretation and reasoning: The Court examined factual findings that the capital goods were used in relation to manufacture of final products in the registered unit (processes performed at the adjacent shed were connected to the production of final goods), and that there was no alienation of the capital goods to third parties. The Court relied on authorities holding that physical installation outside the registered premises does not ipso facto disqualify credit if the goods function as part of the manufacturing activity for the registered unit. Ratio vs. Obiter: Ratio - Credit admissibility depends on actual use in or in relation to manufacture of dutiable goods and non-alienation, not strictly on the physical location within the originally registered premises. Obiter - Observations on procedural steps like application for common registration being pending are ancillary to the main ratio. Conclusion: The cenvat credit claimed in respect of capital goods installed in the adjacent/leased shed (Unit-II) is admissible because the goods were used in relation to manufacture of final products of the registered unit and were not alienated. Issue 2 - Effect of movement/installation to another unit and lack of prior permission/registration Legal framework: Rules require registration and prescribe procedure for claiming credit; movement of capital goods between units may attract scrutiny but substantive entitlement rests on use for manufacture. Precedent treatment: Decisions cited show that mere movement without prior permission or registration does not automatically justify denial of credit where the goods continue to be used for the same manufacturer's production; Tribunal allowed credit where activities at the other premises were integral to manufacture. Interpretation and reasoning: The Court emphasized the substantive test (use in manufacture) over procedural non-compliance when facts show continued use by the same manufacturer and absence of alienation. It noted the appellant had taken steps to seek common registration prior to availment, and the Revenue neither accepted nor rejected that application, indicating absence of deliberate concealment. Ratio vs. Obiter: Ratio - Procedural non-compliance (lack of registration/permission) is not decisive where capital goods are demonstrably used in manufacture by the same taxable entity; substantive use controls. Obiter - Comment that incorporation of premises is a procedural requirement but not determinative of credit admissibility. Conclusion: Movement/installation to another unit of the same manufacturer without prior permission/registration did not disentitle the assesseee to cenvat credit on these facts. Issue 3 - Reversal by one unit and subsequent re-availment by another unit; impact on demand Legal framework: Credit accounting rules allow reversal and re-availment when capital goods are shifted between units; admissibility in the unit claiming credit depends on entitlement under substantive rule. Precedent treatment: Tribunal earlier considered similar re-crediting and allowed credit to the unit which later claimed it, finding use in manufacture satisfied; such prior Tribunal determinations were treated as directly precedential in the present dispute. Interpretation and reasoning: The Court noted the specific chronology: credit was initially availed by Unit-II, reversed, and then availed by Unit-I; a separate Tribunal order had already upheld admissibility of the credit when availed by Unit-I. Given that the credit had been reversed by the appellant before a subsequent availment and that Tribunal had recognized admissibility in Unit-I, the demand for reversal against Unit-II was without merit in the factual matrix. Ratio vs. Obiter: Ratio - Where credit has been reversed and re-availed within the same corporate entity and Tribunal has held admissibility for the final availing unit, a later demand to reverse the earlier intermediate availment lacks substance if substantive entitlement exists. Obiter - Observations on bookkeeping entries are incidental. Conclusion: The reversal and subsequent re-availment did not justify the demand; the Tribunal's prior decision upholding admissibility for Unit-I and facts of reversal weigh against sustaining the impugned demand. Issue 4 - Limitation: validity of show-cause notice issued after five years Legal framework: Statutory limitation period for issuing demand/show-cause notices applies unless extended period is justified by fraud, suppression of facts, or misrepresentation attracting extended limitation. Precedent treatment: The Court applied limitation principles and treated late issuance as barred where no material to invoke extended period was shown; prior decisions cited underscored that knowledge of facts by Revenue or absence of concealment negates extension. Interpretation and reasoning: The show-cause notice was issued more than five years after the relevant availment. The Court found no material to invoke extended limitation (no allegation/finding of fraud, suppression or misrepresentation). Moreover, the Revenue was aware of the facts (application for common registration and communications regarding shifting of capital goods), undermining a contention for extended period. Ratio vs. Obiter: Ratio - A notice issued beyond the limitation period is barred unless the revenue establishes grounds for extended limitation (fraud/suppression), which were absent here. Obiter - Remarks on the Revenue's failure to act on the registration application are ancillary. Conclusion: The show-cause notice issued after more than five years is time-barred and cannot sustain the demand in the absence of material justifying extended limitation. Overall Conclusion The impugned order demanding reversal of cenvat credit and imposing penalty is set aside: (a) substantive entitlement to credit is established on the facts because the capital goods were used in or in relation to manufacture of dutiable goods and were not alienated; (b) procedural non-compliance (unit registration/permission) did not defeat the substantive right to credit; (c) the credit had been reversed and re-availed with prior Tribunal acceptance for re-availment; and (d) the show-cause notice was time-barred. The appeal is allowed with consequential relief.