2023 (10) TMI 868 - AT - Central Excise

Tribunal Overturns Excise Duty Recovery; Rule 3(5) Cenvat Credit Rules 2004 Not Applicable Due to Lack of Evidence

The Tribunal set aside the Department's order demanding recovery of Central Excise duty and penalties from the appellant, who was accused of selling plant ... Levy of Excise Duty - sale of fixed asset (plant and machinery) - applicability of Sub Rule (5) of Rule 3 of CCR, 2004 - time limitation - HELD THAT:- Rule 3(5) makes it abundantly clear that it shall apply to such inputs or capital goods on which Cenvat Credit has been taken and that such capital goods have been sold as such. There is no denial to the fact that the goods which have been sold by the appellant were such assets which have been used by the appellants since its purchase till the date of those were sold. Resultantly, one condition of the above quoted provision i. e. goods are removed “as such” stands un-complied with the meaning of the expression “as such” has been clarified by the Larger Bench of this Tribunal in the case of MODERNOVA PLASTYLES PVT. LTD. VERSUS COMMISSIONER OF C. EX., RAIGAD [2008 (10) TMI 51 - CESTAT, MUMBAI]. The other condition for the applicability of rule 3 (5) of Cenvat Credit Rules, 2004 is that the appellant would have availed the Cenvat Credit on the capital goods in question. The said condition is the bone of contention for the impugned appeal - it is observed that merely from the balance-sheet entries the department has presumed that the appellant would have availed the Cenvat Credit on the capital goods as were removed in the afore-mentioned financial years. Thus, the initial burden was of the Department / Revenue to prove the said presumption. Department has not placed on record any such document nor there is any specific allegation about any specific amount to ever been availed by the appellant as Cenvat Credit. The capital goods which are shown adjusted in the financial year 2015-16 are mentioned to have been purchased in the year 1986-89 and that they could not have been sold even as scrap. There is no evidence produced by the department to rebut or falsify the said submission - the allegations of the Department in the Show Cause Notice were merely presumptive and Department could not produce any evidence to prove those presumptions. The order has wrongly held the purchase invoices as sales invoices. Time Limitation - HELD THAT:- The Show Cause Notice is miserably silent about any allegation of malafide, willful suppression etc. on the part of appellant to evade the impugned amount. Hence any basis for invoking the extended period of limitation is found absolutely missing in the present case. Resultantly, the Show Cause Notice itself gets hits by the time limitation. Appeal allowed. 1. ISSUES PRESENTED AND CONSIDERED - Whether Rule 3(5) of the Cenvat Credit Rules, 2004 applies where capital goods reflected as 'sales/adjustments' in balance-sheets were used in the factory prior to removal, i.e., whether removal was 'as such'. - Whether the Department discharged its burden to demonstrate that Cenvat credit had in fact been availed on the capital goods said to have been removed, such that reversal/payment under Rule 3(5) could be demanded. - Whether purchase invoices and other documents produced by the assessee negate the Department's presumption that Cenvat credit was availed (i.e., whether documents on record were purchase invoices without excise details and therefore do not support a claim of credit). - Whether the demand is barred by limitation because the Show Cause Notice was issued beyond the normal period without any allegation warranting extended limitation (e.g., fraud, suppression or willful misstatement). 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Applicability of Rule 3(5) CCR, 2004 - removal 'as such' of capital goods - Legal framework: Rule 3(5) CCR, 2004 requires payment equal to credit availed when inputs or capital goods, on which Cenvat credit has been taken, are removed 'as such' from the factory and such removal is to be made under an invoice referred to in Rule 7. - Precedent treatment: The Tribunal followed the Larger Bench ruling that the expression 'as such' means removed in original form and can cover both new/unused and used capital goods; that interpretation was relied upon to determine the scope of Rule 3(5). - Interpretation and reasoning: The Court noted that one condition of Rule 3(5) is the goods be removed 'as such.' It recognized authoritative interpretation that 'as such' denotes original form (without alteration) and includes both used and unused capital goods; however, in the present facts the goods had been used in the factory until the date of purported removal, and the Department had not shown that removals were of capital goods 'as such' in the sense required for application of the provision to trigger reversal/payment. - Ratio vs. Obiter: The acceptance of the Larger Bench interpretation of 'as such' as binding on scope of Rule 3(5) is treated as ratio for application; the observation that used goods may fall within 'as such' is applied to the facts and forms part of the operative reasoning. - Conclusion: Rule 3(5) applies only where (i) Cenvat credit was availed on the capital goods and (ii) such goods were removed 'as such.' The factual record did not establish removal in the sense required to automatically sustain the Department's demand independent of proof of availment of credit. Issue 2: Burden of proof - whether Department proved availment of Cenvat credit - Legal framework: Where a demand is predicated on an assumption that credit was availed, the Department bears the initial burden to substantiate that presumption by producing relevant records (e.g., RG-23 Part II, purchase invoices showing excise duty and availment entries). - Precedent treatment: The Court applied standard evidentiary principles requiring the revenue to place on record documents supporting an allegation of credit availment rather than base demand solely on balance-sheet entries. - Interpretation and reasoning: The Tribunal found the Department relied on balance-sheet entries showing sales/adjustments but produced no RG-23 Part II or specific evidence of credit having been taken. The Tribunal held that the initial burden to prove that Cenvat credit was availed rested with the Department and that mere presumptive inference from balance-sheet entries was insufficient when supporting records were absent. - Ratio vs. Obiter: The holding that the Department must adduce direct evidence of credit availment before confirming reversal under Rule 3(5) constitutes ratio in relation to evidentiary burden in such demands. - Conclusion: The Department failed to discharge its burden to prove that Cenvat credit had been availed on the capital goods; therefore the foundation for invoking reversal/payment under Rule 3(5) was absent and the demand could not be sustained on that ground. Issue 3: Character and sufficiency of documents produced by appellant - purchase invoices vs. sales invoices; absence of excise element - Legal framework: Availability of Cenvat credit depends on invoices evidencing payment/charge of excise duty; purchase invoices lacking excise particulars cannot support a claim of credit having been availed. - Precedent treatment: The Tribunal treated documentary character (purchase v. sale invoices and presence/absence of excise duty entries) as dispositive of whether credit could possibly have been availed. - Interpretation and reasoning: The Tribunal examined the invoices on record and concluded they were purchase invoices (pertaining to earlier years) without any mention of excise duty; therefore they did not support an inference that Cenvat credit had been taken. It further found a factual error in the order below which recorded that only sales invoices were produced; that finding was contradicted by the record and rendered the impugned order unsustainable. - Ratio vs. Obiter: The conclusion that purchase invoices without excise details negate entitlement to Cenvat credit and thereby defeat reversal demands is applied as part of the dispositive reasoning. - Conclusion: The invoices produced negate the Department's presumption of credit availment; the order under challenge incorrectly characterized those documents and therefore is vitiated. Issue 4: Limitation - whether demand is time-barred in absence of allegation warranting extended limitation - Legal framework: Show Cause Notices must be issued within the prescribed limitation period unless facts of fraud, willful misstatement, suppression, etc., justify invocation of extended limitation. - Precedent treatment: The Tribunal applied statutory/time-bar principles to the dates of alleged transactions and issuance of Show Cause Notice. - Interpretation and reasoning: The Tribunal observed the Show Cause Notice was issued beyond the normal period and that it contained no allegation of malafide, suppression, or willful conduct by the assessee that would justify invoking extended limitation. Absent such allegations or supporting material, extended limitation could not be invoked. - Ratio vs. Obiter: The finding that the Show Cause Notice is time-barred in the absence of allegations warranting extended limitation is applied directly to invalidate the demand on limitation grounds. - Conclusion: The demand is barred by limitation because the Show Cause Notice was issued beyond the normal period without any basis for extending limitation; this ground independently supports setting aside the demand. Cross-reference: The conclusions on evidentiary insufficiency (Issue 2) and incorrect characterization of documents (Issue 3) operate together to undermine the applicability of Rule 3(5) (Issue 1); additionally, limitation (Issue 4) provides an independent basis to set aside the demand. Overall conclusion (ratio): The Department failed to prove that Cenvat credit had been availed on the capital goods said to have been removed; the invoices on record are purchase invoices lacking excise particulars and were mischaracterized by the order below; removal 'as such' and the requisites of Rule 3(5) were not established; and the Show Cause Notice was time-barred in the absence of allegations justifying extended limitation. The impugned demand is therefore set aside.