2024 (3) TMI 124 - AT - Central Excise

Tribunal Remands Case for Merit Adjudication, Limits Extended Period for Correcting Computation Errors.

M/s. Tulsyan NEC Limited Versus The Commissioner of Central Excise, Bangalore

The Tribunal set aside the impugned order and remanded the matter for adjudication on merit within the normal period of limitation. It held that while the ... Principles of Res-judicata - Invocation of Extended period of Limitation - Recovery of illegally availed CENVAT Credit with interest and penalty - earlier SCN was withdrawn and second SCN issued for the recovery - HELD THAT:- There are no substance in the argument of the learned advocate for the appellant in as much as the first show-cause notice had not been decided confirming the allegations and the demand proposed therein and not resulted in an appealable order. During the pendency of the adjudication of the said show-cause notice, another show-cause notice was issued by the Commissioner correcting the computation error in the first show-cause notice and a higher demand has been proposed. However, there are substance in the argument of the learned advocate for the appellant that since in the first show-cause notice extended period of limitation has been invoked and stating the same set of facts which has been repeated in the second show-cause notice for invoking extended period of limitation, cannot be sustained in view of the judgment of the Hon’ble Supreme Court in NIZAM SUGAR FACTORY VERSUS COLLECTOR OF CENTRAL EXCISE, AP [2006 (4) TMI 127 - SUPREME COURT]. The matter is remanded to the Commissioner to restrict the adjudication of demand to normal period of limitation - Appeal allowed by way of remand. ISSUES PRESENTED AND CONSIDERED 1. Whether a second show-cause notice issued by the adjudicating authority during the pendency of an earlier show-cause notice, withdrawing the earlier notice and proposing a higher demand by correcting computation, is impermissible as being hit by res judicata or otherwise invalid. 2. Whether the invocation of the extended period of limitation in a subsequently issued show-cause notice is sustainable where the earlier show-cause notice (still pending adjudication) had already invoked the extended period on substantially the same set of facts. 3. Whether the Commissioner has jurisdiction to withdraw a show-cause notice issued by a subordinate authority and issue a fresh notice correcting computation methodology in the assessment of CENVAT credit. 4. Whether the question of admissibility of CENVAT credit of Education Cess on inputs received from a 100% EOU under Rule 3(7)(a) of the CENVAT Credit Rules, 2004 requires adjudication (i.e., whether the matter should be decided on merits or remanded for fresh adjudication after limitation/rule issues are resolved). ISSUE-WISE DETAILED ANALYSIS Issue 1 - Validity of issuing a second show-cause notice during pendency of an earlier notice (res judicata/duplicity objection) Legal framework: The adjudicatory process permits withdrawal and re-issue of show-cause notices by competent authority subject to jurisdictional limits and consistency with principles of natural justice. Principles of res judicata apply to final adjudicated orders, not to pending proceedings. Precedent treatment: The appellant relied on tribunal decisions to argue invalidity of a second notice; the Tribunal considered established authority (distinction from final orders) and Supreme Court guidance on limitation issues (see Issue 2 below). Interpretation and reasoning: The Court observed the first show-cause notice had not culminated in any appealable or final order; it was pending and not decided on merits. Consequently, the existence of a pending show-cause notice does not, by itself, preclude the Commissioner from withdrawing it and issuing a fresh notice correcting computation errors or otherwise re-framing the demand, provided the Commissioner acts within jurisdiction and follows natural justice. Ratio vs. Obiter: Ratio - A subordinate authority's pending show-cause notice does not automatically bar the Commissioner from withdrawing it and issuing a fresh notice correcting material errors in computation; such withdrawal and re-issuance is not struck down as res judicata when no final order exists. Conclusion: Issuance of a second show-cause notice in substitution for an earlier pending notice is not per se invalid as res judicata; the Commissioner may withdraw and re-issue a notice to correct computation, subject to jurisdictional limits and fair procedure. Issue 2 - Invocation of extended period of limitation in successive notices based on the same facts Legal framework: Extended limitation may be invoked only upon materials justifying the extended period as prescribed by law; successive or repeated invocation on the same set of facts requires scrutiny to prevent abuse of limitation rules. Precedent treatment (followed/distinguished/overruled): The Court relied upon the principle enunciated by the Supreme Court in Nizam Sugar Factory (not cited here) to hold that repeated invocation of extended limitation on the same facts cannot be sustained. Interpretation and reasoning: Although the Commissioner corrected the computation and proposed a higher demand, the second show-cause notice invoked the extended period of limitation and included the period covered by the earlier notice which had itself invoked the extended period. The Tribunal found that invoking extended limitation again on the same facts duplicated the prior invocation and was unsustainable under the cited superior authority. Ratio vs. Obiter: Ratio - A second show-cause notice cannot validly invoke the extended period of limitation for the same factual matrix already covered by a prior show-cause notice that had invoked extended limitation; where extended period has been invoked in the earlier notice, repetition in a subsequent notice on identical facts is impermissible. Conclusion: The second notice's invocation of the extended period, insofar as it seeks to cover the same facts/period already included in the earlier notice that had invoked extended limitation, is unsustainable; adjudication must be restricted to the normal period of limitation and the matter remanded accordingly. Issue 3 - Jurisdiction of the Commissioner to withdraw subordinate authority's notice and re-frame demand by correcting computation Legal framework: Supervisory powers of the Commissioner include review and corrective action over subordinate adjudicatory processes, subject to statutory limits and fair procedure. Precedent treatment: The Revenue's reliance on supervisory competence was accepted as a valid ground to withdraw and re-issue where the earlier computation methodology was found to be incorrect. Interpretation and reasoning: The Tribunal accepted that the Commissioner could withdraw the earlier notice issued by the Additional Commissioner and issue a fresh notice to correct the computation method (i.e., apply the appropriate formula under Rule 3(7) of the CENVAT Credit Rules, 2004) provided such exercise is within jurisdiction and not arbitrary. The Court treated this power as not per se beyond the Commissioner's jurisdiction. Ratio vs. Obiter: Ratio - The Commissioner is competent to withdraw a subordinate adjudicatory notice and re-issue a fresh notice to correct computation errors, subject to observance of jurisdictional bounds and principles of natural justice. Conclusion: Withdrawal and re-issuance to correct computation is permissible; however, such action must comply with limitation rules (see Issue 2) and fair hearing requirements. Issue 4 - Admissibility of CENVAT credit of Education Cess on inputs from a 100% EOU and necessity of remand for merits Legal framework: Admissibility of CENVAT credit depends on statutory provisions and interpretation of Rule 3(7)(a) of the CENVAT Credit Rules, 2004; prior tribunal authority has considered similar questions. Precedent treatment: The appellant relied on a tribunal decision favourable to claimants; the Tribunal in the present matter did not decide the substantive admissibility question but kept merits open for adjudication on remand. Interpretation and reasoning: Given the procedural defect identified (unsustainable repeated invocation of extended limitation), the Tribunal refrained from adjudicating the substantive issue of admissibility of credit and remanded the matter for fresh adjudication limited to the normal period of limitation. The Tribunal expressly directed that principles of natural justice be observed on remand. Ratio vs. Obiter: Obiter as to substantive admissibility - The Tribunal did not pronounce on the merits of the CENVAT credit claim; it is not deciding the substantive question but directing re-adjudication. Conclusion: The substantive question of admissibility of CENVAT credit of Education Cess from a 100% EOU remains open and must be decided by the Commissioner on remand within the normal limitation period, after granting the appellant an opportunity of hearing and applying the correct computation method. Relief and operative conclusion The impugned adjudication is set aside to the extent the second notice invoked extended limitation for the same facts already covered by the earlier notice; the matter is remanded to the Commissioner to restrict adjudication to the normal period of limitation, to decide the merits afresh applying the correct computation formula, and to observe principles of natural justice by granting an opportunity of hearing.