2025 (3) TMI 954 - AT - Central Excise

CENVAT credit reversal on furnace oil for mixed goods cannot invoke extended limitation without suppression of facts

M/s Schreiber Dynamix Dairies Limited Versus Commissioner of Central Goods & Service Tax, Pune-III

CESTAT Mumbai held that extended period of limitation cannot be invoked for non-reversal of CENVAT credit on furnace oil used in manufacturing both ... Non-reversal of CENVAT Credit on Furnace Oil used in the manufacture of both dutiable as well as exempted goods - invocation of extended period of limitation - suppression of facts or not - HELD THAT:- With regard to applicability of the provisions of Rule 57CC ibid and Rule 6 of the Rules of 2001/2002/2004, it is found that the issue was highly contentious and there were divergent views expressed by the different judicial forums. Finally, the dispute was resolved by the Hon'ble Supreme Court in the case of Gujarat Narmada Valley Fertilizers Co. Ltd. [2019 (12) TMI 430 - SUPREME COURT] where it was held that 'What is clear is that the exception to sub-rule (1) which is contained in sub-rule (2) itself contains an exception, namely, inputs intended to be used as fuel. This being the case, the moment it is found that inputs are intended to be used as fuel, such inputs go outside the ken of sub-rule (2) of Rule 6. When this happens, the exception contained in sub-rule (2) does not come into effect at all as a result of which sub-rule (1) must be applied on its own terms.' On careful reading of the said relied upon judgment, it is found that the Hon'ble Supreme Court have distinguished the contents in both the Rules i.e. sub-rule (1) and sub-rule (2) of Rule 6 ibid. Since sub-rule (2) of Rule 6 ibid has not dealt with the input i.e., ‘fuel’, in order to maintain separate records by the assessee, it was held that as per the provisions of sub-rule (1) of Rule 6 ibid, the assessee is required to reverse the CENVAT Credit availed on fuel used in or in relation to manufacture of the exempted goods. It is an admitted fact on record that the appellants had reversed the CENVAT Credit on pro-rata basis in respect of the Furnace Oil used for manufacture of the exempted final product. The appellants have contended that non-reversal of CENVAT Credit, involving the extended period of limitation, was owing to the reason that there was no element of suppression of facts, mis-statement etc., with intent to evade the government revenue. In this context, learned Advocate appearing submitted that with regard to Rule 57CC ibid and Rule 6 ibid, the issues were highly contentious and there were divergent views expressed by different judicial forums. Thus, he contended that the charges of suppression, mis-statement etc., cannot be levelled against the appellants, justifying invocation of extended period of limitation, prescribed under Rule 57(1) ibid and Rule 14 ibid, read with Section 11A of the Central Excise Act, 1944 - The submissions made by the learned Advocate for the appellants agreed upon, that the charges of suppression, mis-statement etc., cannot be fastened on the appellants inasmuch as they had maintained proper records to demonstrate the actual quantity of Furnace Oil used in the manufacture of the exempted goods and the said particulars were also furnished by them before the jurisdictional Central Excise authorities under the cover of their letter dated 05.05.2000. The demand, if any, should be calculated with respect to the normal period prescribed under Section 11A ibid. Since the appellants had averred that in the letter dated 24.08.2012, they had intimated the jurisdictional Central Excise authorities regarding reversal of MODVAT/ CENVAT Credit availed by them, the matter should be remanded to the original authority for the limited purpose of verification of records to ascertain the accuracy of the submissions made by the appellants regarding reversal of MODVAT/CENVAT Credit by them. Conclusion - The appellants had sufficiently reversed the CENVAT Credit on a pro-rata basis and maintained proper records. Matter remanded to the original authority for the limited purpose of verification of records to ascertain the accuracy of the submissions made by the appellants regarding reversal of MODVAT/CENVAT Credit by them. Appeal disposed off by way of remand. 1. ISSUES PRESENTED and CONSIDEREDThe core legal question considered in this judgment revolves around the requirement for reversal of CENVAT Credit on Furnace Oil used in the manufacture of both dutiable and exempted goods. Specifically, the issues include whether the appellants were required to reverse CENVAT Credit for inputs used in exempted goods and whether the extended period of limitation for demand due to alleged suppression of facts was applicable.2. ISSUE-WISE DETAILED ANALYSISRelevant Legal Framework and Precedents:The legal framework is primarily based on Rule 57CC of the erstwhile Central Excise Rules, 1944, and Rule 6 of the CENVAT Credit Rules, 2001, 2002 & 2004. The judgment heavily relies on the Supreme Court's decision in Commissioner of Central Excise, Vadodara-II Vs. Gujarat Narmada Valley Fertilizers Co. Ltd., which clarified the application of these rules concerning fuel inputs.Court's Interpretation and Reasoning:The Tribunal examined the distinction between sub-rule (1) and sub-rule (2) of Rule 6. Sub-rule (1) is described as plenary, reiterating that CENVAT credit for inputs used in the manufacture of exempted goods is not allowable. Sub-rule (2) refers to non-fuel inputs and requires separate accounting, but does not apply to fuel inputs. The Supreme Court's interpretation emphasized that fuel inputs are excluded from sub-rule (2), but still fall under sub-rule (1), necessitating the reversal of credit for inputs used in exempted goods.Key Evidence and Findings:The appellants had reversed the CENVAT Credit on a pro-rata basis for Furnace Oil used in the manufacture of exempted goods, as evidenced by their communication with the jurisdictional Central Excise Commissionerate. The Tribunal acknowledged this reversal but noted the contention regarding the extended period of limitation due to alleged suppression of facts.Application of Law to Facts:The Tribunal applied the Supreme Court's interpretation to the facts, confirming that the appellants were required to reverse CENVAT Credit for Furnace Oil used in exempted goods. However, it found that the appellants had maintained proper records and communicated the reversal, negating the charges of suppression or misstatement.Treatment of Competing Arguments:The Tribunal considered the Revenue's argument that the appellants had not reversed the credit as required. However, it agreed with the appellants that the issues were contentious and divergent views existed, which precluded the application of the extended period of limitation for demand.Conclusions:The Tribunal concluded that the demands confirmed in the impugned orders could not be sustained. It remanded the matter to the adjudicating authority for verification of the records to confirm the accuracy of the appellants' submissions regarding the reversal of credit.3. SIGNIFICANT HOLDINGSPreserve Verbatim Quotes of Crucial Legal Reasoning:The Tribunal highlighted the Supreme Court's reasoning: 'CENVAT credit for duty paid on inputs used in the manufacture of exempted final products is not allowable.' This principle is inbuilt in the CENVAT scheme, and sub-rule (1) applies to all inputs, including fuel.Core Principles Established:The judgment reinforces the principle that CENVAT credit is not allowable for inputs used in exempted goods, including fuel inputs, under sub-rule (1) of Rule 6. It also establishes that proper record-keeping and communication can negate charges of suppression, affecting the applicability of the extended period of limitation.Final Determinations on Each Issue:The Tribunal determined that the appellants had sufficiently reversed the CENVAT Credit on a pro-rata basis and maintained proper records. It remanded the case for verification of these records, with instructions for the original authority to allow the credit if the records support the appellants' claims.