CENVAT credit disputes worth Rs. 6,25,651 allowed as department failed to provide corroborative evidence beyond suspicion

CESTAT Kolkata allowed the assessee's appeal regarding CENVAT credit disputes totaling Rs. 6,25,651/- for input consumption, ruling the department's allegations were based on suspicion without corroborative evidence. The tribunal also allowed credit of Rs. 5,14,168/- for returned goods and Rs. 89,61,000/- for brand promotion services availed before product exemption. The demand was held time-barred as credit availment was disclosed in ER-1 returns without suppression. Interest under Rule 14 and penalty under Rule 15 were deemed inapplicable for Rule 11(3) recovery. Revenue's cross-appeal was dismissed.

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Issues Involved:
1. CENVAT credit availed for brand promotion services.
2. CENVAT credit availed on invoices addressed to head office/corp. office.
3. Demand under Rule 11(3)(ii) of the CCR in respect of inputs contained in semi-finished goods.
4. Demand under Rule 11(3)(ii) of the CCR in respect of inputs contained in final product lying in stock.
5. Demand under Rule 16(2) of the Central Excise Rules, 2002 on returned goods.
6. Interest and penalty under Rule 14 and Rule 15 of the CCR respectively.
7. Demand of Rs. 1,20,66,182/- under Rule 11(3)(ii) of the CCR for not reversing CENVAT credit on input (PV Yarn) lying in stock.
8. Limitation period for raising demands.

Detailed Analysis:

1. CENVAT Credit on Brand Promotion Services:
- Issue: Whether CENVAT credit of Rs. 89,61,000/- availed on brand promotion services should be reversed since the final product became exempted.
- Finding: The Tribunal held that once CENVAT credit on input services is legally taken and utilized, it need not be reversed if the final product becomes exempted subsequently. The credit was availed on 25.02.2013, before the final product became exempt on 01.03.2013. Rule 6 of the CCR cannot be invoked to deny this credit as it applies only when both dutiable and exempt products are manufactured. Rule 11(3) of CCR applies only to inputs, not input services.
- Conclusion: The demand for reversal of CENVAT credit was rightly dropped by the adjudicating authority.

2. CENVAT Credit on Invoices Addressed to Head Office:
- Issue: Whether CENVAT credit availed on invoices addressed to the head office/corp. office can be denied.
- Finding: The Tribunal observed that substantive benefit of CENVAT credit cannot be denied for mere procedural lapses like incorrect address on invoices. As per Rule 9(2) of the CCR, the address of the service recipient is not a mandatory requirement.
- Conclusion: The adjudicating authority rightly allowed the credit of Rs. 26,70,004/-. The confirmation of demand of Rs. 14,962/- was not sustainable.

3. Demand under Rule 11(3)(ii) for Inputs in Semi-Finished Goods:
- Issue: Whether the demand of Rs. 6,25,651/- under Rule 11(3)(ii) for inputs in semi-finished goods is sustainable.
- Finding: The Tribunal held that the Department's allegation that inputs were consumed in a single day was based on suspicion without corroborative evidence. The Appellant-Assessee recorded the usage of inputs at the end of the month as per accounting practice.
- Conclusion: The demand was set aside as the allegation was not substantiated by evidence.

4. Demand under Rule 11(3)(ii) for Inputs in Final Product:
- Issue: Whether the demand of Rs. 31,24,345/- for inputs in the final product lying in stock is correct.
- Finding: The Appellant-Assessee admitted liability of Rs. 32,04,919/- and had already paid Rs. 19,20,801/-. They were willing to pay the balance amount of Rs. 12,84,118/-.
- Conclusion: The Appellant-Assessee is liable to pay/reverse CENVAT Credit amounting to Rs. 12,84,118/-.

5. Demand under Rule 16(2) for Returned Goods:
- Issue: Whether the demand of Rs. 5,14,168/- on returned goods is sustainable.
- Finding: The Tribunal observed that the returned goods were included in the finished goods stock records and there was no evidence to suggest they were kept separately.
- Conclusion: The demand was set aside as it amounted to duplication.

6. Interest and Penalty:
- Issue: Whether interest and penalty can be levied on the amount to be recovered under Rule 11(3)(ii).
- Finding: Rule 14 of the CCR applies only if CENVAT credit is taken and wrongly utilized. An amount determined under Rule 11(3)(ii) cannot be termed as CENVAT credit taken and wrongly utilized. Penalty under Rule 15 can be imposed only when CENVAT credit is wrongly utilized in contravention of the Central Excise Act or rules.
- Conclusion: No interest or penalty is leviable.

7. Demand of Rs. 1,20,66,182/- for Not Reversing CENVAT Credit on PV Yarn:
- Issue: Whether the demand of Rs. 1,20,66,182/- for not reversing CENVAT credit on PV Yarn lying in stock is valid.
- Finding: The demand was based on a misconception that PV Yarn credit was not reversed. The Appellant-Assessee had already considered this amount while working out the reversal under Rule 11(3)(ii).
- Conclusion: The demand was set aside as it would amount to duplication.

8. Limitation Period:
- Issue: Whether the demand raised by invoking the extended period of limitation is sustainable.
- Finding: The demand was raised beyond the permissible period without evidence of wilful suppression or mis-declaration. The records were periodically audited and the fact of availment of CENVAT credit was reflected in ER-1 returns.
- Conclusion: The entire demand confirmed vide impugned order dated 20.08.2015 was set aside on the ground of limitation.

Final Order:
1. The Appellant-Assessee is liable to pay/reverse CENVAT Credit amounting to Rs. 12,84,118/-.
2. The demand of Rs. 6,25,651/- for inputs in semi-finished goods is set aside.
3. The demand of Rs. 5,14,168/- for returned goods is set aside.
4. The dropping of the demand of Rs. 89,61,000/- for brand promotion services is upheld.
5. The allowing of CENVAT Credit of Rs. 26,70,004/- is upheld, and the confirmation of Rs. 14,962/- is set aside.
6. The entire demand confirmed vide impugned order dated 20.08.2015 is set aside on the ground of limitation.
7. No interest is leviable, and the penalty imposed is set aside.
8. The appeals filed by the Appellant-Assessee are disposed of on the above terms, and the appeal filed by Revenue is dismissed.

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