DATE OF AUDIT OBJECTION IS NOT THE RELEVANT DATE FOR PURPOSE OF LIMITATION

[Mr. M. GOVINDARAJAN]

Section 11A of Central Excise Act, 1944 (‘Act’ for short) gives powers to Central Excise Officer to recover duties not levied or not paid or short levied or short paid or erroneously refunded.  For this purpose the Central Excise Officer is to serve notice on the person chargeable with the duty which has not been so levied or paid or which has been so short-levied or short-paid or to whom the refund has erroneously been made, requiring him to show cause why he should not pay the amount specified in the notice within one year from the relevant date.

The term ‘relevant date’ means-

• in the case of excisable goods on which duty of excise has not been levied or paid or has been short-levied or short-paid—

• where under the rules made under this Act a periodical return, showing particulars of the duty paid on excisable goods removed during the period to which the said return relates, is to be filed by a manufacturer or a producer or a licensee of a warehouse, as the case may be, the date on which such return is so filed;
• where no periodical return as aforesaid is filed, the last date on which such return is to be filed under the said rules;
• in any other case, the date on which the duty is to be paid under this Act or the rules made there under;

• in a case where duty of excise is provisionally assessed under this Act or the rules made there under, the date of adjustment of duty after the final assessment thereof;
• in the case of excisable goods on which duty of excise has been erroneously refunded, the date of such refund.

The provisions of Central Excise provide for the audit by the Departmental officers.  It is used to raise objections during the time of audit and based on the audit objections the department may take action for the recovery of the duty from the assessee.  The issue to be discussed in this article whether the date of audit objection can be considered as ‘relevant date’ for recovery of duty with reference to decided case law.

In ‘Midi Extrusions Limited V. Commissioner of Central Excise, Noida’ – 2014 (2) TMI 453 - CESTAT NEW DELHI the appellants are manufacturing of aluminium extrusions falling under Chapter Heading 7604 of the I Schedule to the Central Excise Tariff Act, 1985.  The appellant used a laptop on which special software was installed.  The said laptop was used for managing the functionalities of the machines.  The appellant utilized CENVAT credit on the excise duty paid on laptop.

The Revenue was of the view that the laptop is not the capital goods on the objection raised by the Audit.   It was not either part of any machine or linked with the production process.  A show cause notice was issued to the appellant denying the credit taken on the laptop.  The appellant produced before the adjudicating authority the quotations given by the supplier of the machine and the said quotation clearly showed that the laptop was required for managing the machine.  However the Adjudicating Authority denied the CENVAT credit for the reason that the laptop is the movable and not capital goods.  Interest and equal penalty was also imposed.

Aggrieved against the order of the Adjudicating Authority, the appellant filed appeal before Commissioner (Appeals) who also rejected the appeal.   Thus the case came before the Tribunal.  Before the Tribunal the appellant submitted the following:

• The laptop is very important and integral part of the Aluminium Press (2500 Ton capacity);
• Without active involvement of laptop the aluminium press cannot be operated;
• The invoice of the supplier clearly shows that the laptop in question is a tool for running the manufacturing machine;
• The invoice also contains the information regarding specifications of the laptop as well as of the software required to be used;
• The  said invoice clearly proves that the laptop is an integral and important part of the manufacturing machine;
• The laptop is within Chapter 84 of the Central Excise Tariff Schedule and in the definition of ‘capital goods; nowhere it is required that such goods should be immovable;
• The capital goods has to be reckoned in the context of the definition of ‘capital goods’ given in the statutory rules;
• The demand is also barred by limitation.

The Tribunal found that the lower authorities rejected the CENVAT credit on the ground that the laptop was imported separately from the machine and the appellant was working on the very same machine prior to the purchase of laptop.  As such it cannot be considered that the laptop was a capital goods supplied when the machine itself and such was an integral part.   The Tribunal found that when the credit was availed the machines were not in a position to work without laptop.  There is no reason to hold that the laptop would not fall within the definition of ‘capital goods’ since it is a moveable one.  The laptop falls within Chapter 84 of the Tariff Act. As per Rule 2(a)(A) of CENVAT Credit Rules, goods falling under Chapter 84 are to be treated as capital goods.  The machines operate through the special software installed in the laptop that had become a necessity on account of technology advancement.   The fact that prior to the use of laptop the machines were used without the laptop cannot be held to be a factor so as to not to treat the laptop as capital goods.  The Tribunal held that the appellant is entitled to CENVAT credit.

In regard to limitation, the Commissioner (Appeals) observed that the show cause notice was issued within a period of one year from the date of audit objections raised and therefore it is within the limitation period.   The Tribunal did not agree with the findings of the Commissioner (Appeals).  The relevant date as specified under the law does not start from the date of audit objection.   The Tribunal further observed that adopting the said date as the relevant date, for the purpose of limitation, would amount to rewrite the law.  The appellants availed the credit in the statutory records and the same was reflected in the returns/declarations filed by them.  As such there is no mala fide intention on the part of the appellant.  The Tribunal held that the demand is barred by limitation also.