2025 (11) TMI 854 - AT - Central Excise

Recovery of wrongly availed CENVAT credit upheld; EPCG export obligations unmet, penalties under Rule 15(1) and s.11AC sustained

Sampark Industries Ltd Versus Commissioner, CGST, Ghaziabad

CESTAT upheld recovery of wrongly availed CENVAT credit and dismissed the appeal. Tribunal found the appellant failed EPCG export obligations, improperly ... Recovery of wrongly taken credit of duty - CENVAT Credit of amount paid towards Customs Education Cess and Customs Secondary & Higher Education Cess - credit availed on SAD on capital goods imported - credit availed on CVD on capital goods namely, Flat Die Co-extrusion Line imported under EPCG, which was destroyed in the fire accident and was not in possession of the appellant - extended period of limitation - Penalty imposed in terms of Rule 15(1) of the CENVAT Credit Rules, 2004 read with Section 11AC of the Central Excise Act, 1944 - HELD THAT:- The Appellant has imported Metallic BOPP Film, Metallic Polyester Film, Metallic Coated Poly Film and Metalized Paper and under EPCG scheme against EPCG license No.0530132877 dated 21.05.2002 the Appellant failed to fulfill the export obligation i.e. 5 times the CIF value imported under the EPCG license. As the Appellant did not fulfill the requirement of the license, DGFT directed the Appellant to pay the due Customs Duty vide letter dated 15.10.2014 the entire credit. It is also worth noting that the capital goods against which credit was being sought have been destroyed in fire accident in the year 27.09.2010. It is quite evident that even before the date when the fire accident took placed the period prescribed as per EPCG license has been completed. The Appellant have not fulfilled the export obligation in term of Rule 4(2)(b) of the CENVAT Credit Rules. Further, on the date of taking credit, Appellant was not in possession of any of these machines. However it is also found that period for fulfillment of the export obligation in the present case was over much before the destruction of the machines in the fire accident as claimed by the appellant. Appellant have at no stage of proceedings even produced the copy of installation certificate in respect of these capital goods imported under EPCG scheme in their premises. In respect of the credit availed on Education CESS and Secondary and Higher Education CESS paid on Customs duty, these do not clarify as specified duty in terms of Rule 3(1) of the CENVAT Credit Rules, 2004. Also SAD paid on capital goods imported by them was not specified duty in terms of Rule 3(1) of CENVAT Credit Rules - there are no merits in the submissions made by the Appellant in this regard. Rule 3(1) only promotes credit in terms of Education CESS and Higher Education CESS paid on respect of the Central Excise duty (countervailing duty) at the time of importation not of customs thus there is no merits in this submissions. Invocation of extended period of limitation - HELD THAT:- Appellant never disclosed these facts to the concerned authorities in their ER-1 Return. They suppressed the fact that they were availing CENVAT Credit in respect of the duties paid as per the direction of the DGFT of the EPCG license issued in the year 2002 and they have availed CENVAT Credit on the Customs Education CESS and Customs Secondary & Higher Education CESS. The intention to evade payment of tax is clearly visible as by availing this inadmissible credit and utilizing the same for payment of Central Excise duty, Appellant have evaded payment of due Central Excise duty. Necessary ingredients to invoke extended period of limitation as per proviso to Section 11A are present in the appeal and the impugned order rightly upholds that extended period is invokable. Penalty imposed in terms of Rule 15(1) of the CENVAT Credit Rules, 2004 read with Section 11AC of the Central Excise Act, 1944 - HELD THAT:- It is found that Appellant have evaded Central Excise duty by resorting to suppression of facts etc with intent to evade payment of duty, the penalties proposed in terms of Rule 15(1) of the CENVAT Credit Rules, 2004 read with Section 11AC of the Central Excise Act, 1944 needs to be upheld. There are no merits in the appeal filed by the Appellant - appeal dismissed. 1. ISSUES PRESENTED AND CONSIDERED 1. Whether CENVAT credit is admissible in respect of Education Cess and Higher Education Cess paid as part of customs duty at the time of importation, where such cess was paid on an amount inclusive of basic customs duty and countervailing duty (CVD), under Rule 3(1) of the CENVAT Credit Rules, 2004. 2. Whether CENVAT credit is admissible in respect of Special Additional Duty (SAD) paid on capital goods imported under EPCG where the EPCG export obligation was not fulfilled and duty was later paid in discharge of DGFT demand, under Rule 3(1) of CCR and Rule 4(2) of CCR. 3. Whether CENVAT credit is admissible in respect of CVD paid on capital goods imported under EPCG that were destroyed in a fire and not in the possession of the assessee on the date credit was availed, with reference to Rule 4(2) of CCR and conditions of EPCG scheme. 4. Whether suppression of material facts in ER-1 returns or otherwise, and availment of inadmissible CENVAT credit with intent to evade duty, attracts invocation of extended period of limitation under proviso to Section 11A and penalty under Rule 15(1) of the CENVAT Credit Rules read with Section 11AC of the Central Excise Act, 1944. 5. Whether maxim that a person cannot gain from his own wrongs (nullus commodum capere potest de injuria sua propria) and related precedents bar claim to CENVAT credit or refund where EPCG conditions were violated or capital goods were not installed/available. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Admissibility of CENVAT credit on Education Cess and Higher Education Cess paid at import (inclusive of Basic CD and CVD). Legal framework: Rule 3(1) of the CENVAT Credit Rules, 2004 specifies the categories of duties which are admissible for credit on import, permitting credit of duties specified (countervailing duty and related excise duties) and the conditions for such credit. Precedent treatment: The impugned order follows the settled interpretation that only duties expressly specified in Rule 3(1) qualify for CENVAT credit; cesses imposed under separate statutory provisions (Finance Act / Customs Tariff Act) are not covered unless expressly included. Interpretation and reasoning: The Court/Tribunal reasoned that Education Cess and Higher Education Cess paid on an amount inclusive of Basic Customs Duty and CVD are not 'specified duties' under Rule 3(1) as that sub-rule permits credit of Education Cess and Higher Education Cess only where they are leviable on the specified excise duty (i.e., CVD), not where imposed by separate laws or on amounts that aggregate duties. Payment of cess under a different enactment (Finance Act / Customs Tariff Act) does not transform it into a specified duty for CCR purposes. Ratio vs. Obiter: Ratio - credit is not admissible where the cess is not a duty specified within Rule 3(1); the Tribunal's conclusion that such cess paid as part of customs liability cannot be credited is binding within the facts. Conclusion: CENVAT credit of Education Cess and Higher Education Cess paid as part of customs duty (inclusive of Basic CD and CVD) was erroneously availed and rightly disallowed and demanded. Issue 2: Admissibility of CENVAT credit of Special Additional Duty (SAD) on capital goods imported under EPCG where EPCG export obligation was not fulfilled. Legal framework: Rule 3(1) CCR (2002/2004) governs admissible duties for credit; EPCG scheme conditions and DGFT directions require fulfillment of export obligations or payment of duty; Rule 4(2)(b) CCR addresses credits where conditions of duty-free imports are not fulfilled. Precedent treatment: The Tribunal followed prior decisions (as cited in reasoning) that conditional imports under schemes like Advance Authorization/EPCG cannot be treated as ordinary imports for CENVAT benefit if conditions are breached; duty liability and recovery procedure under FTP/HBP apply. Interpretation and reasoning: The Tribunal observed capital goods were imported duty-free under EPCG, export obligations were not met, and DGFT directed payment of customs duty. The duty was paid in consequence of breach and not in the normal course on receipt of goods; moreover, the capital goods were not available in factory (destroyed earlier), and no installation certificate was produced. Taking credit after breach defeats the conditional nature of EPCG relief and is impermissible. Ratio vs. Obiter: Ratio - credits arising from conditional duty-free imports under EPCG are inadmissible where export obligations are unfulfilled and duty is paid in regularisation; such availment is contrary to the scheme and Rule 4(2) and therefore correctly recoverable. Conclusion: CENVAT credit of SAD/CVD on capital goods imported under EPCG was inadmissible where export obligations were not fulfilled; recovery and disallowance upheld. Issue 3: Admissibility of CENVAT credit of CVD on EPCG-imported capital goods destroyed in fire and not in possession on date of credit availed. Legal framework: Rule 4(2) CCR restricts credit where capital goods are not in possession or where conditions for credit are not met; EPCG conditions and requirement of goods being available for use in manufacture are relevant. Precedent treatment: The Tribunal relied on analogous decisions holding that credit cannot be taken where capital goods are not installed/available or where they were imported conditionally and obligations remained unfulfilled. Interpretation and reasoning: The Tribunal found that the capital goods were destroyed prior to the date on which credit was availed, were not in possession, and export obligation period had already lapsed; no installation certificate was produced. The conditions of Rule 4(2) and EPCG scheme were therefore not met, rendering credit impermissible. Ratio vs. Obiter: Ratio - credit cannot be claimed for capital goods not in possession or not fulfilling scheme conditions at the time of taking credit; such availment is liable to be disallowed and recovered. Conclusion: CENVAT credit of CVD on the destroyed EPCG capital goods was inadmissible and rightly demanded. Issue 4: Invocation of extended period of limitation and imposition of penalty for suppression and intent to evade duty. Legal framework: Proviso to Section 11A of the Central Excise Act allows extended limitation where duty has been evaded by fraud, suppression, or misstatement; Rule 14 CCR prescribes demand/recovery in such cases; Rule 15(1) CCR read with Section 11AC allows penalty for wrongful availment of credit. Precedent treatment: The Tribunal applied established principles that suppression of material facts and non-disclosure in statutory returns (ER-1) justifies extended limitation and penalties; it cited higher court authority upholding penal consequences where evasion and suppression are proven. Interpretation and reasoning: The Tribunal found non-disclosure of inadmissible credits in ER-1 returns, availment and utilization of such credits to discharge excise liability, and absence of departmental knowledge prior to audit. The deliberate concealment and use of inadmissible credit evidenced intent to evade, satisfying the proviso to Section 11A and ingredients for penalty under Rule 15(1) CCR read with Section 11AC. Ratio vs. Obiter: Ratio - extended limitation and penalty provisions apply where suppression of material facts and intent to evade duty are established; such provisions were correctly invoked and penalties upheld. Conclusion: Extended period of limitation under proviso to Section 11A and penalty under Rule 15(1)/Section 11AC were properly invoked and sustained given suppression and intent to evade. Issue 5: Application of equitable maxim against a wrongdoer and effect on claim to credit/refund. Legal framework: Equity principle that one cannot take advantage of one's own wrong (nullus commodum...) and judicial authority applying the principle to tax/benefit claims where claimant breached statutory conditions. Precedent treatment: The Tribunal relied on cited Supreme Court observations and tribunal decisions to apply the maxim, following earlier holdings that benefits obtained through breach of scheme conditions cannot be retained. Interpretation and reasoning: The Tribunal held that claiming CENVAT credit or refund after knowingly availing conditional benefits in breach of EPCG conditions, diverting or failing to install capital goods, or suppressing facts amounts to seeking advantage from one's own wrong - an equitable bar to the claim. Ratio vs. Obiter: Ratio - equitable maxim is applicable to deny benefits/claims where claimant's own wrongful conduct caused non-fulfilment of statutory conditions; used to reinforce denial of credit and recovery. Conclusion: The maxim and related authorities support denial of the claimed credits and sustain recovery and penalties; no merit in appellant's equitable pleas. Overall Conclusion The Tribunal finds no merit in the appeal: credits of Education Cess, Higher Education Cess, SAD and CVD in the circumstances described were inadmissible under the CENVAT Credit Rules and EPCG conditions; suppression and intent to evade justified invocation of extended limitation and imposition of penalty; demand, interest, appropriation and penalty upheld and the appeal dismissed.