2024 (2) TMI 563 - AT - Central Excise

Tribunal Upholds Cenvat Credit Demand, Waives Penalty; Appellant Must Pay Interest Until Reversal Date.

Lyka Labs Limited Versus Commissioner of Central Excise & ST, Bharuch (Vice-Versa)

The Tribunal upheld the demand for the specific amount related to Cenvat credit but waived the penalty, acknowledging the Appellant's compliance with ... Levy of penalty - Suppression of facts or not - appellant have paid the amount of proportionate credit of input and input services attributed to the exempted goods or not - non-following the procedure as laid down under Rule 6 (3) (1)/(2)/3A of Cenvat Credit Rules, 2004 nor reversal of any credit utilized for manufacture of exempted goods - HELD THAT:- The fact regarding manufacture and clearance of dutiable as well as exempted goods and availment of credit on the entire input and input services commonly used for manufacture of dutiable and exempted goods is very well on record and known to the department. Accordingly, there is no suppression of fact on the part of the appellant. Hence, the entire demand is prima-facie time bar. However, the appellant have admittedly paid the amount of Rs. 60,15,116/- and they are only contesting the penalty. Though the demand is prima facie time bar but since the appellant have admittedly paid and not contesting such payment, the demand to the extent of Rs. 60,15,116/- is upheld and payment made thereof by the appellant is maintained. However, the appellant is not liable for any penalty. The penalty is set aside. Needless to say that since the appellant have paid the amount of 60,15,116/- which is proportionate Cenvat credit attributed to the exempted goods belatedly, they are liable to pay the interest till the date of reversal - Appeal allowed in part. ISSUES PRESENTED AND CONSIDERED 1. Whether demand under Rule 6(3) of the Cenvat Credit Rules, 2004 (equal to 5% or 6% of value of exempted goods) is sustainable where the assessee has reversed/paid proportionate Cenvat credit attributable to exempted goods. 2. Whether the demand (including reduced demand equal to proportionate credit) is time-barred and, if so, what consequences follow when the assessee nonetheless pays the proportionate credit admitted to be due. 3. Whether penalty is exigible where the assessee has (a) a prima facie strong case on time-bar and (b) has paid the proportionate Cenvat credit belatedly and is not disputing that payment. ISSUE-WISE DETAILED ANALYSIS Issue 1: Sustainability of a Rule 6(3) demand (5%/6%) where proportionate credit is reversed/paid Legal framework: Rule 6(3) of the Cenvat Credit Rules, 2004 sanctions imposition of a liability calculated at prescribed percentages (5%/6%) on clearances of exempted goods where credit has been availed on inputs/input services used for both dutiable and exempted goods; Rules also recognise reversal of proportionate credit applicable to exempted goods. Precedent treatment: The appellant relied on an array of authorities holding that where proportionate credit is duly reversed, a separate demand under Rule 6(3) equal to a fixed percentage of the exempted goods' value is not maintainable. The Tribunal recorded these precedents as supporting the appellant's position. Interpretation and reasoning: The Tribunal accepted that the appellant had availed credit on inputs and input services used for both dutiable and exempted goods and that the department was aware of this fact. Given the admitted reversal/payment of proportionate credit (Rs. 60,15,116/-), the Tribunal treated the appellant's contention-backed by precedents-that a Rule 6(3) demand equal to 5%/6% is not sustainable once proportionate credit is reversed-as a valid legal principle relevant to the facts. Ratio vs. Obiter: The Tribunal's observation that reversal/actual payment of proportionate credit undermines a separate Rule 6(3) percentage demand operates as ratio for the facts before it (since the decision rests on the admitted payment and the authorities cited). Any general statement beyond these facts is persuasive but not a broad overruling of Rule 6(3). Conclusion: The Tribunal treated the legal position favorable to the assessee as established and relevant, and, combined with factual findings (payment/reversal), did not sustain a separate Rule 6(3) percentage demand beyond the admitted proportionate credit. Issue 2: Time-bar and effect of voluntary/belated payment of proportionate credit Legal framework: Limitation/time-bar provisions under the relevant excise law govern the period within which demands can be raised; reversal of credit and its timing are material to whether a demand can be sustained. Precedent treatment: The Tribunal noted the appellant had a 'strong prima facie case on time bar' and recorded precedents relied upon by the appellant that support time-bar defenses where the department had knowledge of the activity or where statutory limitations apply. Interpretation and reasoning: On facts the Tribunal found (a) manufacture and clearance of both dutiable and exempted goods and availment of credit were on record and known to the department, (b) absence of suppression of facts, and (c) therefore the demand in its entirety was prima facie time-barred. Nevertheless, since the assessee admitted and paid the proportionate credit (Rs. 60,15,116/-) even though that admitted liability may itself be time-barred, the Tribunal declined to set aside the payment and upheld the demand to the extent of the admitted paid amount. Ratio vs. Obiter: The finding that the overall demand is prima facie time-barred is ratio as applied to the facts. The decision to uphold the paid amount while treating the broader demand as time-barred is also a ratio based on the facts of admitted payment and departmental knowledge. Conclusion: The Tribunal held the overall demand to be prima facie time-barred. However, because the assessee had voluntarily paid the proportionate credit, the Tribunal sustained the demand to the extent of the amount paid and maintained that payment; it did not disturb the reversal/payment made by the assessee. Issue 3: Liability to penalty where there is a prima facie time-bar defence and admitted belated payment of proportionate credit Legal framework: Penalty provisions apply where duty/credit irregularity arises from concealment, fraud, suppression, or mis-statement, or otherwise as provided by statute; mitigation/waiver of penalty is available in appropriate circumstances. Precedent treatment: The appellant relied on multiple authorities supporting remission/waiver of penalty where there is no suppression and where proportionate credit has been reversed/paid. The Tribunal considered these authorities as part of the contextual matrix supporting leniency. Interpretation and reasoning: The Tribunal emphasised that there was no suppression of facts-the department was aware of the manufacture and availment of credit for both dutiable and exempted goods. Given (a) the strong prima facie time-bar defence, (b) the absence of concealment or suppression, and (c) the assessee's admitted payment of the proportionate credit (albeit belated), the Tribunal exercised a lenient view and concluded that imposition of penalty was not justified. Ratio vs. Obiter: The setting aside of penalty on these particular facts is ratio: it follows from the Tribunal's factual finding of departmental knowledge and lack of suppression. Any broader proposition that penalty is never leviable in similar circumstances would be obiter; the decision is expressly fact-driven. Conclusion: Penalty imposed by the adjudicating authority was set aside in view of absence of suppression, the assessee's payment of the proportionate credit, and a prima facie time-bar defence. The Tribunal granted relief from penalty while maintaining interest liability (see below). Ancillary holding: Interest liability on belated reversal/payment Legal framework and reasoning: Interest is payable on belated reversal/repayment of credit until the date of actual reversal/payment as per the relevant statutory provisions. Conclusion: While the Tribunal waived penalty, it held that interest is payable on the belated amount (Rs. 60,15,116/-) up to the date of reversal/payment; the adjudicating authority's imposition of interest is sustained to that extent. Overall Disposition (as applied to the facts) 1. The demand is prima facie time-barred, but the admitted belated payment of proportionate Cenvat credit (Rs. 60,15,116/-) is upheld and maintained as paid by the assessee. 2. Penalty imposed by the adjudicating authority is set aside on the facts (no suppression, departmental knowledge, admitted payment, and strong time-bar defence). 3. Interest on the belatedly reversed/paid proportionate credit remains payable up to the date of reversal/payment. Cross-references: The Tribunal relied upon and recorded several precedents supportive of the legal propositions above; its conclusions are fact-specific and grounded on (i) admitted factual payment/reversal, (ii) absence of suppression, and (iii) the prima facie time-bar defence.