2025 (12) TMI 511 - AT - Central Excise

Time-barred extended demand set aside, Cenvat re-credit benefit upheld under Area-Based Exemption Notification 20/2007-CE for assessee-unit

CESTAT Kolkata allowed the appeal of the assessee-unit availing area-based exemption under Notification No. 20/2007-CE. The Tribunal held that although ... Eligibility for credit - Availing area based exemption benefit under Notification No. 20/2007-CE dated 25/04/2007 by means of re-credit - appellant did not fully utilize the Cenvat Credit balance but claimed the re-credit - time limitation - HELD THAT:- There are force in the arguments taken by the appellant that even if some excess re-credit has been taken, this will offset by subsequently lesser re-credit being received by them for the next month. Therefore, it cannot be said that the appellant specifically gains anything or Revenue losses any duty on this count. At the most, since the re-credit has been taken before it becomes available to them, the appellant can be made to pay interest for the intervening period. However, this is not the issue raised in the Show Cause Notice. Therefore, it is refrained to go into this argument. The view of the appellant also not subscribed that just because there is no revenue loss, the demand can be set aside. If all the transactions are revenue neutral, there would be no necessity to specify any condition in the Notification. Once the condition is specified in the Notification to the effect that the Cenvat Credit is required to be exhausted fully, the same has to be fulfilled by the appellant. However, non-fulfillment of the condition cannot result in such huge demands made by the Revenue by dis-allowing the entire credit. Time limitation - HELD THAT:- There are force in argument of the appellant. The appellant has been taking the Cenvat Credit, utilizing the same and also claiming the refund which are all part of the Monthly Returns - The Hon’ble Allahabad High Court in the case of Commissioner of Central Excise, Noida Vs. Accurate Chemical Industries [2014 (2) TMI 770 - ALLAHABAD HIGH COURT] has clearly held that even under the self-assessment regime, scrutiny of the Returns filed is required to be taken up and errors / contraventions, if any, are required to be pointed out. In the present case, no action was taken by the Department till the Show Cause Notice was issued on 15/2/2018 in spite of the issue being raised by the Audit in May 2016. Therefore, we hold that the confirmed demand for the extended period cannot be legally sustained. The confirmed demand for the extended period, interest thereon and penalty imposed on the appellant set aside - appeal allowed. 1. ISSUES PRESENTED AND CONSIDERED 1.1 Whether re-credit of duty under area based exemption was admissible when Cenvat credit balance had not been fully exhausted, and the effect of revenue neutrality on such demand. 1.2 Whether the extended period of limitation for demand of duty, interest and penalty could be invoked when all particulars of Cenvat credit, utilization and re-credit were disclosed in monthly returns and the issue had already been flagged in audit much earlier. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Admissibility of re-credit under Notification No. 20/2007-CE when Cenvat credit was not fully exhausted; relevance of revenue neutrality Interpretation and reasoning 2.1 The Tribunal noted the admitted position that the condition in Notification No. 20/2007-CE requiring full exhaustion of Cenvat credit before claiming re-credit had not been fulfilled by the assessee on certain occasions during 2014-15 and 2015-16. 2.2 The assessee argued that there was no loss to the exchequer as any excess re-credit in one month would get automatically offset by lesser re-credit in subsequent months, resulting in an overall revenue-neutral position, and relied on decisions of co-ordinate Benches setting aside similar demands. 2.3 The Tribunal held that the condition prescribed in the Notification requiring full exhaustion of Cenvat credit before availing re-credit is a substantive condition and must be complied with. The existence of revenue neutrality, by itself, does not entitle an assessee to disregard such a condition, nor does it by itself justify setting aside the demand. If revenue neutrality were treated as a ground to ignore notification conditions, specifying such conditions in the Notification would become redundant. 2.4 At the same time, the Tribunal observed that, in the factual matrix, excess re-credit taken in advance only resulted in timing difference and, in substance, could at best attract liability to interest for the intervening period for early availment of re-credit. However, this question of interest on timing difference had not been raised in the show cause notice and therefore was not adjudicated. Conclusions 2.5 The Tribunal held that the notification condition requiring exhaustion of Cenvat credit before re-credit is mandatory and must be fulfilled. Non-fulfilment of such condition, however, could not, in the facts, justify disallowance of the entire re-credit in the sweeping manner adopted, particularly when the demand itself was found to be time-barred under the extended period (Issue 2). Issue 2 - Invocation of extended period of limitation for demand, interest and penalty Legal framework (as discussed) 2.6 The Tribunal referred to the principle laid down by the High Court that, even under a self-assessment regime, the Department is required to scrutinize returns and point out errors or contraventions, and cannot indefinitely delay action when full particulars are available on record (Commissioner of Central Excise, Noida v. Accurate Chemical Industries, 2014 (310) E.L.T. 441 (All.)). Interpretation and reasoning 2.7 The show cause notice dated 15.02.2018 related to Cenvat credit and re-credit transactions during April 2014 to November 2015. The Tribunal found that all particulars of Cenvat credit taken, utilized and re-credited, as well as refund claims, were duly reflected in the monthly returns filed by the assessee. 2.8 The Tribunal noted that the issue had already been pointed out during audit conducted in May 2016, yet no action was taken until issuance of the show cause notice in February 2018. In view of the complete disclosure in returns and audit, there was no material to support allegations warranting invocation of the extended period. 2.9 Applying the High Court's ruling on the obligation of the Department to scrutinize returns under self-assessment, the Tribunal held that the Department could not rely on the extended period when all relevant facts were within its knowledge or accessible through returns, and there was no suppression or misstatement. Conclusions 2.10 The Tribunal held that the invocation of the extended period of limitation was unsustainable. Consequently, the confirmed demand raised for the extended period, along with interest and penalty, could not be legally sustained and was set aside in toto. 2.11 The appeal was allowed to the extent of setting aside the demand for the extended period, interest thereon and penalty, with the assessee being entitled to consequential relief in accordance with law.