2026 (1) TMI 1345 - AT - Central Excise

Cenvat credit on transport insurance for FOR sales allowed for some periods while earlier denial and normal duty upheld

Entitlement to Cenvat credit on transport insurance for goods sold FOR destination is the central issue. Applying the Board circular and High Court ... Entitlement to Cenvat credit on transport insurance where sales were on FOR destination basis - place of removal - extended period of limitation - absence of mens rea and penalty - remand for re-computation - Rule 2(qa) of the Cenvat Credit Rules, 2004 - Board's Circular No. 1065/4/2018-CX dated 08.06.2018 - HELD THAT:- We find that this Tribunal vide its Final Order No. 28/2015-CHD dated 02.12.2015 confirmed the demand by denying the Cenvat Credit on insurance service relating to insurance of goods beyond the place of removal and remanded the matter back to the Adjudicating Authority for re-computation of demand relating to insurance service. The said order of the Tribunal has not been challenged by the Appellant, so it becomes final as for as the denial of the Cenvat Credit on insurance service for the period from April 2006 to February 2011. Further, we also find that the impugned OIO has been passed keeping in view the direction by the Tribunal vide its order dated 02.12.2015, therefore, this Tribunal does not have power to review the order dated 02.12.2015 whereby the demand has been confirmed by denying the Cenvat Credit on insurance service. By considering the Circular No. 1065/4/2018-CX dated 08.06.2018 and various judgments of the Courts, the Hon’ble High Court of Himachal Pradesh in the case of Inox Air Products Pvt Ltd. [2024 (4) TMI 32 - HIMACHAL PRADESH HIGH COURT], has held that the Assessee are entitled to avail the Cenvat Credit on insurance of goods while transporting the same to the customers’ premises on FOR basis. Therefore, by following the said judgment of the Hon’ble High Court of Himachal Pradesh, we hold that the Appellant are entitled to Cenvat Credit on insurance service for the subsequent period from August 2014 to July 2015. Further, we hold that for prior period from April 2006 to February 2011, the Appellant are not entitled to Cenvat Credit on insurance service in view of the Tribunal’s Final Order dated 02.12.2015 and therefore, the Appellant are liable to pay the duty for the normal period along with interest. Limitation - HELD THAT:- This issue of limitation has been considered by this bench of the Tribunal in the case of Pepsico India Holdings Pvt Ltd vs. Commr of CGST, Panchkula – [2025 (4) TMI 1185 - CESTAT CHANDIGARH], wherein the Tribunal has set aside the demand raised by invocation of extended period on the basis that the issue of credit reversal involves interpretation and the department failed to establish that the Assessee suppressed the facts with intention to evade tax. Therefore, by following the ratio of the said decision, we set aside the demand for extended period from April 2006 to March 2010 in respect of Cenvat Credit; however, the remaining demand for normal period is confirmed along with interest. As regards penalty, we hold that since the issue relates to interpretation and there was no mens rea on part of the Appellant, therefore, penalty imposed on the Appellant is not sustainable. Issues: Whether the Appellant is entitled to Cenvat Credit on transport insurance where sales are made on FOR (free on road/destination) basis.Analysis: The Tribunal noted that its earlier Final Order dated 02.12.2015 (not challenged by the Appellant) had denied Cenvat Credit on insurance for the period April 2006 to February 2011 and remanded for re-computation; that order therefore remains final for that period. Subsequently the Board issued Circular No. 1065/4/2018-CX and the Hon'ble High Court of Himachal Pradesh in Inox Air Products held that Cenvat Credit on insurance for goods transported to the customer's premises on FOR basis is allowable; following that authority and the Circular the Tribunal held that Cenvat Credit is allowable for the later period August 2014 to July 2015. On limitation, the Tribunal found no evidence of suppression, fraud or wilful mis-statement by the Appellant and, following a recent decision of this Bench, set aside the demand raised by invocation of the extended period for April 2006 to March 2010 while confirming the remaining normal period demand with interest. The Tribunal also held that penalty is not sustainable because the issue involved interpretation and there was no mens rea on the part of the Appellant.Conclusion: The appeal is allowed in part: Cenvat Credit on transport insurance is denied for April 2006 to February 2011 (as per the Tribunal's earlier unchallenged order) but allowed for August 2014 to July 2015; demand raised by invocation of extended period for April 2006 to March 2010 is set aside; the remaining normal-period demand is confirmed with interest; penalty is set aside.