TaxTMI 
TaxTMI 
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2026 (3) TMI 149
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....ing on excess credit" in contravention of Rule 3(5) of the CENVAT Credit Rules, 2004. 1.2 The Appellant manufactures automotive wiring harnesses falling under Chapter Heading 85 of the Central Excise Tariff Act, 1985. The units involved are D-7, Industrial Estate, Maraimalai Nagar - 603 209; K-7, SIPCOT Industrial Park, Guduvancherry; and E-8, Industrial Estate, Maraimalai Nagar - 603 209, all under the jurisdiction of the then Chennai-III Commissionerate. For brevity, they are referred to as D-7, K-7 and E-8. Inputs were procured at one unit, credit was availed, and certain inputs were transferred "as such" to sister units. Instead of reversing the exact credit originally taken as required under Rule 3(5), the assessee debited an amount computed on its internal accounting methodology, which in some instances resulted in higher reversal. 1.3 The Department alleged that D-7, by issuing invoices reflecting such debit, passed on excess credit to K-7 and E-8, enabling them to avail inadmissible credit. Consequently, Show Cause Notices were issued invoking Rule 3(5) and Rule 14 of the CENVAT Credit Rules, 2004 read with Section 11A of the Central Excise Act, 1944, and in certain c....
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....t is submitted that Section 11D applies only when an assessee collects any amount representing duty from another person. 3.3 The assessee also submits that the extended period is not invocable as the entire movement of inputs was reflected in ER-1 returns and invoices. There is no suppression or misstatement. Reliance was placed on the various judicial precedents including decisions holding that procedural irregularities in credit reversal cannot attract extended limitation where facts are disclosed. 4. Per Contra, the Ld. AR on behalf of the Revenue contended that Rule 3(5) is mandatory and requires reversal of credit originally taken. Any deviation leads to distortion in the credit chain. It was argued that by issuing invoices showing higher duty element than credit originally availed, the assessee enabled recipient units to avail excess credit, which is impermissible. It is further contended that revenue neutrality cannot be pleaded in case of contravention of statutory rules. In the departmental appeal, Revenue seeks restoration of full demand and penalties. 5. We have carefully heard the submissions advanced by both sides, examined the appeal records in detail, consid....
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....an amount equal to the credit availed in respect of such inputs." The language of the rule is clear. It creates a statutory obligation of neutralization. It does not create a ceiling. The provision ensures that the credit taken does not remain with the assessee once the inputs are removed without being used in manufacture. 7.4 We find that the statute mandates a minimum equal reversal. It does not expressly prohibit reversal of a higher amount. Fiscal provisions creating liability must be strictly construed. A prohibition cannot be inferred by implication. If the legislature intended to penalize debit in excess of credit originally availed, it would have expressly provided so. The rule is silent on such prohibition. 7.5 We observe that the entire scheme of Rule 3(5) is revenue neutrality. Once the credit originally taken stands reversed, the Government's revenue position is restored. In the present case, the allegation is not of short reversal but of excess reversal. Therefore, the foundational element of revenue prejudice is absent. Section 11D 7.6 We note that Section 11D of the Central Excise Act, 1944 mandates that every person who has collected any amount from a bu....
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....th sale to an independent buyer. There is no passing of consideration representing duty in this appeal. 7.12 We therefore find that the invocation of Section 11D in the present case lacks both statutory foundation and factual basis and is wholly inapplicable to the D-7 unit, as there was no collection of any amount from a buyer nor any element of unjust enrichment. We further find that D-7 did not contravene Rule 3(5) of the CENVAT Credit Rules, 2004, inasmuch as reversal of an amount equal to or greater than the credit originally availed satisfies the statutory requirement of neutralization, and there is neither short reversal nor wrongful utilization so as to attract Rule 14 read with Section 11A of the Central Excise Act, 1944. Accordingly, we uphold the dropping of the demand in Orderin-Original No. 13/2015 (CE) dated 28.09.2015. QUESTION No. 2 Whether denial of CENVAT credit to K-7 and E-8 is sustainable when D-7 has reversed the credit and such reversal has not been refunded or set aside. 8.1 We note that SCN Nos. 46/2014 and 47/2014 proposed denial of credit to K-7 (Rs.38,31,600/-) and E-8 (Rs.39,07,886/-). We observe that the adjudicating authority confirmed such d....