2025 (10) TMI 66 - AT - Central Excise

ER-1 returns meet proviso to Rule 9(2) CENVAT Credit Rules; limited recovery and penalty under Rule 15 read with s.11AC

M/s Jakson Engineers Ltd. Versus Commissioner of Central Excise & Service Tax, Noida

CESTAT (Allahabad) held that ER-1 returns satisfy the proviso to Rule 9(2) of the CENVAT Credit Rules and may constitute a prescribed document for ... Wrongful availment of CENVAT Credit - prescribed documents for availing credit - ER-1 of the appellant for the months of June and July 2016 could be considered as prescribed document for the purpose of availing this credit or not - Rule 9 (2) of the CENVAT Credit Rules, 2004 - HELD THAT:- This rule was considered by the Mumbai Bench in the case of HDFC Bank Ltd.[2021 (12) TMI 1533 - CESTAT MUMBAI] where it was held that 'If the document falls within the category of the documents prescribed the same are accepted as direct evidence of payment, but still in case of doubt the same needs to be established. If the document do not file within the category of the prescribed documents as per Rule 9 (1) then the burden to establish the payment of the tax shifts on to the person claiming the credit. Rule 9 (2) do not prescribe any document but provides for relaxation in respect of the documents as specified in the Rule 9 (1) and subject to those relaxation the credit can be allowed in respect of the document fulfilling the requirement of Rule 9 (2).' There are no hesitation in holding that the ER-1 filed by the appellant is a duty paying document and contains all the details as prescribed by the proviso to Rule 9 (2). It is not even the case of the revenue that this excess amount debited from the CENVAT Account is not reflected in the ER-1 returns filed by the appellant. Having held so, there are no merits in the allegations made against the appellant in respect of the availing the credit on the basis of in-admissible documents. Appellant have relied upon a series of decisions in the support of their contention with regards the admissibility of this CENVAT Credit, without following the procedure of Section 11B for the refund of the excess duty paid. In any case for the reasons recorded in the preceding paragraphs it is not found necessary to decide with regards to the applicability of the said decision. The decision of the larger bench of tribunal in the case of BDH Industries [2008 (7) TMI 78 - CESTAT MUMBAI-LB], relied upon by the revenue is clearly distinguishable for the reason that the same was in case of the double payment of duty, para 4 of the said decision records “in their case the goods were supplied under claim for rebate of duty and duty was paid once at the time of clearance of consignment and secondly at the end of the month when the duty is required to be paid in respect of all consignments cleared during the month. Since the duty was debited twice, they suo motto took the credit of the same and informed the department of it.” In the present case, it is not concerned with the case of double payment of duty, but the issue that needs to be decided is whether the ER-1 filed by the appellant showing debit of CENVAT Credit in excess of the duty assessed can be considered as document for availing the CENVAT Credit. The other decisions relied in the impugned order follow the ratio laid down by the BDH Industries and are distinguishable. The appellant has taken credit of Rs 2,35,184/- in excess of what was the excess payment as per the ER-1 returns and due to them accordingly we modify the demand to that extent. As the demand has been restricted to Rs.2,35,184/- penalty imposed under Rule 15 of the Cenvat Credit Rules, 2004 read with Section 11AC of the Central Excise Act, 1944 is restricted to Rs.23,518/- (10% of the amount of credit recoverable). Appeal allowed in part. ISSUES PRESENTED AND CONSIDERED 1. Whether an assessee may suo motu re-credit or avail CENVAT credit of duty/service tax allegedly paid in excess by debiting its CENVAT account without obtaining refund/permission under Section 11B of the Central Excise Act, 1944 or sanction of the proper officer. 2. Whether ER-1 returns filed by the assessee for relevant months qualify as 'duty/tax paying documents' or prescribed documents under Rule 9 of the Cenvat Credit Rules, 2004 for the purpose of taking CENVAT credit of amounts debited from the CENVAT account. 3. Whether failure to follow the procedure prescribed by Rule 9 and related provisions (Rules 3, 4, 9 and Rule 14/15 of CCR, 2004 read with Sections 11A, 11AA and 11AC of the Central Excise Act, 1944) renders the credit inadmissible and liable to recovery with interest and penalty, and if so, to what extent penalty is sustainable. ISSUE-WISE DETAILED ANALYSIS Issue 1: Legality of suo motu re-credit/availment of CENVAT credit of excess duty paid without refund/permission Legal framework: Section 11B (refund procedure) and related provisions of the Central Excise Act, 1944; Rule 9 (documents for CENVAT credit) and Rules 3 & 4 (admissibility) of the Cenvat Credit Rules, 2004; Rule 14 (recovery), Rule 15 (penalty) of CCR, 2004 read with Sections 11A, 11AA and 11AC of the Act. Precedent treatment: The Tribunal's Larger Bench decision in BDH Industries (2008) held that there is no provision for suo motu taking of credit or refund without sanction by the proper officer and that refunds must be filed under Section 11B; several other tribunal precedents (Candico, Titawi Sugar, Comfit) follow similar principle. The appellant relied on decisions permitting correction of clerical ER-1 errors or treating excess payment as not requiring Section 11B refund; the Tribunal examined but did not need to decide applicability of all such decisions in light of its findings on documents. Interpretation and reasoning: The Court affirms that the statutory scheme does not permit an assessee to unilaterally re-credit or treat an excess debit as available CENVAT credit without following the statutory refund/permission route. The statutory refund mechanism and requirement of sanction by proper officer ensure compliance with doctrine of unjust enrichment and verification that incidence of duty has not been passed on. Even where excess payment occurred, the proper remedy generally is a refund application under Section 11B or prior permission, not suo motu crediting. Ratio vs. Obiter: Ratio - suo motu re-credit/availment of CENVAT credit without sanction/Section 11B is impermissible in principle and the proper remedy is refund/permission; the BDH Industries principle is followed as a binding ratio for like situations. Obiter - observations on the precise distinction between double payment and excess debit situations as fact-specific. Conclusions: Suo motu availment of credit is not generally permissible; refund/permission procedure under Section 11B must be followed unless the statutory scheme or prescribed documents clearly validate claim and payment of duty can be established by prescribed documents (see cross-reference to Issue 2). Issue 2: Whether ER-1 returns qualify as prescribed duty/tax paying documents under Rule 9 for availing CENVAT credit Legal framework: Rule 9(1) and proviso to Rule 9(2) of the Cenvat Credit Rules, 2004 which prescribe documents on basis of which CENVAT credit may be taken and allow limited relaxation where specified particulars are present and the Deputy/Assistant Commissioner is satisfied that goods/services have been received and accounted for. Precedent treatment: The Tribunal examined recent decisions (including HDFC Bank and Karur Vyasa Bank) applying Rule 9 principles and clarifying that where a document contains the particulars required by Rule 9(2) proviso and establishes the fact of payment, it may be accepted; but absence of prescribed document shifts burden on claimant to establish payment. Interpretation and reasoning: The Tribunal analysed whether the ER-1 returns filed for June and July 2016 contained particulars as per the proviso to Rule 9(2) and whether they evidences of duty payment/debit from the CENVAT account. The Court found ER-1 returns did contain the relevant details and reflected the excess debit from the CENVAT account; revenue did not dispute that. Rule 9 prescribes documents but also recognizes that some documents (meeting proviso particulars) may suffice. Where the ER-1 return itself shows the debit from the CENVAT account and contains required particulars, it qualifies as a duty paying document for the purpose of taking credit, thereby shifting the question away from the need for Section 11B in that specific factual matrix. Ratio vs. Obiter: Ratio - an ER-1 return that contains particulars required by the proviso to Rule 9(2) and evidences debit from the CENVAT account may qualify as a duty/tax paying document permitting availment of credit; absence of dispute on contents strengthens admissibility. Obiter - references to the facts in HDFC Bank relating to non-issuance of invoices by NPCI and ST-3 reconciliation; general applicability depends on document content and proof of payment. Conclusions: ER-1 returns, where they contain the particulars specified in the proviso to Rule 9(2) and show the debit from the CENVAT account, can be treated as prescribed documents for taking CENVAT credit; therefore, in such circumstances, suo motu re-credit contention becomes unnecessary and credit may be admissible notwithstanding initial non-filing of a refund application, subject to verification. Issue 3: Consequences of non-compliance with Rules 3, 4 & 9 and imposition/quantification of demand, interest and penalty Legal framework: Rules 3, 4, 9 of CCR, 2004 (admissibility and prescribed documents), Rule 14 (recovery of inadmissible credit) read with Sections 11A and 11AA (demand and interest), and Rule 15 read with Section 11AC (penalty). Precedent treatment: Earlier authorities sustained recovery and interest where credit was availed without prescribed documents or sanction and have imposed penalties, subject to reduction where demand reduced or factual nuance existed (Titawi Sugar, Comfit, etc.). The appellant relied on cases where clerical ER-1 corrections were treated as non-suo-motu availment and penalties held to be unsustainable if demand itself fails. Interpretation and reasoning: Having found that the ER-1 returns prima facie qualified as prescribed documents and demonstrated excess debit, the Court limited the recovery to the precise amount which was unsupported by ER-1 (i.e., the small difference discovered on comparison with CA certificate). The Tribunal concluded that the original demand of Rs.86,33,733/- was excessive, and reduced the recoverable amount to Rs.2,35,184/-, being the amount of excess credit not substantiated by ER-1 returns. Consequentially, penalty under Rule 15 was proportionately reduced to 10% of the modified recoverable amount (Rs.23,518/-). Interest as applicable under Rule 14/Section 11AA was confirmed on the recoverable amount. Ratio vs. Obiter: Ratio - where part of the credit is substantiated by prescribed documents, recovery and penalty should be limited to the unsubstantiated portion; penalty is not automatically unsustainable but must be proportionate to validated demand. Obiter - broader comments on suspicion arising from delay in detecting the excess debit and on certificates by CA versus requirements for engineer's certificate regarding CENVAT account integrity. Conclusions: Non-compliance with procedural rules can render credit recoverable with interest and attract penalty, but where prescribed documents (here ER-1) substantiate a substantial part of the claimed credit, the demand and penalty must be limited to the unsubstantiated excess; interest remains chargeable on the recoverable portion. Cross-references and final disposition 1. Issues 1 and 2 are interlinked: permissibility of suo motu re-credit is constrained by Section 11B, but if the claimed credit is supported by prescribed documents under Rule 9(2) proviso (Issue 2), the need for a Section 11B refund/permission is obviated for that portion. 2. On the facts, ER-1 returns were held to qualify as duty-paying/prescribed documents for the bulk of the amount; accordingly the Tribunal modified the original demand from Rs.86,33,733/- to Rs.2,35,184/-, confirmed interest on the recoverable sum and reduced penalty to 10% thereof (Rs.23,518/-), and partly allowed the appeal.