2024 (1) TMI 960 - HC - Central Excise

Revenue authority's disallowance of CENVAT credit on capital goods overturned due to limitation period violation

The HC set aside the revenue authority's disallowance of CENVAT credit on capital goods used for manufacturing exempted goods (electricity). The court ... Disallowance of CENVAT Credit - capital goods on which the CENVAT credit was availed were used to manufacture only exempted goods (electricity) - Rule 6(4) of the CENVAT Credit Rules, 2004 - Suppression of facts or not - time limitation - Jurisdiction of the Revenue authority when the show cause notice was issued - HELD THAT:- It is well settled proposition that Section 11A(4) is an exception to the general rule and it should be invoked in exceptional circumstances not in a routine manner and specially when the assessee has disclosed everything which is required to disclose under the statute then it cannot be tainted with fraud of suppression of fact. The monthly return which was filed shows the indisputable fact that the appellant has disclosed about availment of CENVAT credit. In the instant case the appellant way back in the year 2005 filed the return wherein they have disclosed that they have availed the CENVAT credit. In the subsequent return of July, 2008 another availment of CENVAT credit was shown in the return, as the Supreme Court laid down that suppression of fact should not be interpreted as a mere act of omission, therefore, it cannot be held analogous to the fraud. There should have been deliberate act of non disclosure aimed at evading duty. Thus, the extended period under Section 11A(4) would not be available to the department and the show cause should have been issued under Section 11A(1) which permits limitation of only one year, as a result the department should have issued the show cause notice by 6-8- 2009. Whether the shows cause notice dated 7-8-2013 is barred by limitation of five years also? - HELD THAT:- The relevant date in cases not concerning duty on excisable goods shall be date on which duty of excise is required to be paid under the Act or Rules thereunder. In reference to the demand at hand, the entire credit was availed in July, 2008. Therefore, five years should be computed from July, 2008 and according to Rule 8 to the Central Excise Rules, 2002 for date of payment of duty is 6th of every month. Thus, five years commence from 6-8-2008 to 6-8-2013 and show cause notice issued on 7-8- 2013, which is barred by limitation of one day. There is no dispute that monthly statutory return (ER-1) was filed every month by the appellant in the jurisdictional office. The case of the appellant was that when they intend to set up both power plant for manufacture of electricity and plant for dutiable goods, availed the CENVAT credit, which was shown in the return. Jurisdiction of the Revenue authority when the show cause notice was issued - HELD THAT:- The show cause notice was without jurisdiction for the reason that when the show cause notice was issued the amended Rule 14 stipulated that the credit can erroneously availed can be recovered only if it has been taken and utilized. Whether disallowing credit on co- generation power plant which commence production prior to the excisable credit is justified? - HELD THAT:- It cannot be said that revenue was right in disallowing credit on co-generation power plant which commenced production prior to excisable credit as the appellant always has intention to use goods for manufacturing dutiable product. The impugned order set aside - appeal allowed. Issues Involved:1. Jurisdiction and authority under Rule 14 of the CENVAT Credit Rules, 2004 for recovery of credit availed but not utilized.2. Limitation period for issuing recovery proceedings.3. Suppression of facts or malafide intent in availing CENVAT credit.4. Disallowance of credit on co-generation power plant commencing production prior to excisable capacity.Summary:Issue 1: Jurisdiction and Authority under Rule 14 of the CENVAT Credit Rules, 2004The appellant contended that the department lacked jurisdiction to issue a show-cause notice under Rule 14 and Section 11A for CENVAT credit availed but not utilized. The amended Rule 14, effective from April 1, 2012, stipulates that recovery can only be made if the credit has been 'taken and utilized.' The court ruled that the show-cause notice dated 7-8-2013 was without jurisdiction since the credit was only availed and not utilized.Issue 2: Limitation Period for Issuing Recovery ProceedingsThe appellant argued that the department wrongly invoked the extended period of limitation by alleging fraud and suppression. The court noted that the appellant had disclosed the availment of CENVAT credit in its monthly returns, which were filed online and physically. The court held that the extended period under Section 11A(4) was not applicable as there was no deliberate suppression of facts. The show-cause notice issued on 7-8-2013 was barred by limitation as it was issued one day late beyond the five-year period.Issue 3: Suppression of Facts or Malafide IntentThe appellant maintained that there was no willful suppression of facts with intent to evade duty. The court found that the appellant acted in bona fide belief based on multiple judgments and disclosed the availment of CENVAT credit in its returns. The court held that mere omission to give correct information does not constitute suppression unless it is deliberate to evade duty. The extended period of limitation was not applicable, and the show-cause notice should have been issued within one year.Issue 4: Disallowance of Credit on Co-generation Power PlantThe appellant argued that the credit on the power plant should not be disallowed as the intent was always to set up a plant with dutiable capacity. The court referred to the definition of capital goods under Rule 2(a) of the CENVAT Credit Rules and previous judgments, concluding that the intention to use goods for manufacturing dutiable products was sufficient. The revenue was not justified in disallowing the credit on the power plant.Conclusion:The appeal was allowed, and the impugned order dated 15-9-2017 by the Customs, Excise & Service Tax Appellate Tribunal, New Delhi, was set aside. The questions of law were answered in favor of the appellant, with no order as to costs.