2019 (5) TMI 2032 - AT - Central Excise

Denial of cenvat credit - recovery of rebate claim - classification of parts of pumps and milling machine - classifiable under 847490 or under 84379090? - Jurisdiction of Tribunal in terms of Proviso to Section 35B(1) of Central Excise Act 1944 - HELD THAT - It is observed from the proposal in the SCN as well as in the order in original that the proposal for change in classification was not made nor any order was passed therefore merely by discussing the classification in the body of Show Cause as well as the order will not legally alter the classification. There should be a specific proposal in the SCN as well as clear order in order in original. Therefore the classification claimed by the appellant attained finality. Only on this basis itself the appellant s claim of cenvat credit is also correct and legal for the reason that the goods classifiable under Chapter heading 847490 attracts duty accordingly they are entitled for the cenvat credit therefore the demand of cenvat credit of Rs. 14, 48, 600/- plus Education Cess Rs. 11, 217/- is set aside and corresponding penalty imposed under Section 11AC is also set aside. The remaining portion of the order i.e. recovery of Rs. 29, 66, 342/- under Section 11A and the personal penalties of Rs. 5 lakhs each against Sh. Dineshbhai Kotecha and Sh. Dipakbhai Padshah are related to the rebate matter. This Tribunal has no jurisdiction to decide the same in terms of Proviso to Section 35B(1) of Central Excise Act 1944. Appeal is partly allowed and for the rebate matter and personal penalties of individuals the appellants have liberty to file revision application before the appropriate authority. Accordingly the appeal of Sh. Dineshbhai Kotecha and Sh. Dipakbhai Padshah are dismissed as non-maintainable.

Summary

ISSUES PRESENTED and CONSIDERED

1. Whether the classification of the exported goods as parts of milling machines under CETH 8474.90 can be altered by the department without a specific proposal in the Show Cause Notice (SCN) or a clear order in the adjudication?

2. Whether the appellants are entitled to Cenvat credit on inputs used in the manufacture of goods classified under CETH 8474.90, given the department's contention that the goods should be classified under CETH 8437.9090 attracting nil duty?

3. Whether the department's demand for recovery of rebate sanctioned on the goods, and imposition of personal penalties on individuals, falls within the jurisdiction of the Appellate Tribunal or requires revision before an appropriate authority?

ISSUE-WISE DETAILED ANALYSIS

Issue 1: Classification of Exported Goods and Validity of Change in Classification

Relevant Legal Framework and Precedents: The classification of goods under the Central Excise Tariff is a factual and legal determination that must be clearly proposed in the SCN and confirmed by an adjudication order to alter the classification claimed by the assessee. Reliance was placed on precedents such as Roofit Ind. Ltd. (2005 (191) ELT 635), UOI vs Jain Shudh Vanaspati Ltd. (1996 (86) ELT 460 SC), and ITI Ltd. vs CC (2008 (228) ELT 78), which emphasize the principle that classification once accepted in adjudication attains finality unless challenged through proper procedure.

Court's Interpretation and Reasoning: The Tribunal observed that although the department discussed the possibility of reclassifying the goods from CETH 8474.90 to 8437.9090 in the body of the SCN and the adjudication order, there was no explicit proposal or formal order effecting such change. The Tribunal held that mere discussion of classification in the SCN or adjudication order does not amount to a legal alteration of classification. A specific proposal in the SCN and a clear adjudication order are mandatory to change classification.

Key Evidence and Findings: The SCN and order in original lacked a formal proposal or order changing classification. The appellants consistently claimed classification under 8474.90 and availed benefits accordingly.

Application of Law to Facts: Since the classification claimed by the appellants was never formally challenged or altered by the department, it attained finality. The department could not retrospectively reclassify the goods without following due process.

Treatment of Competing Arguments: The department argued that the classification was discussed at length and hence effectively changed. The Tribunal rejected this, emphasizing procedural requirements for classification change and reliance on binding precedents.

Conclusions: The appellants' classification of goods under CETH 8474.90 stands confirmed, and no change in classification was legally effected.

Issue 2: Entitlement to Cenvat Credit on Inputs

Relevant Legal Framework and Precedents: Under the Central Excise regime, Cenvat credit is admissible on inputs used in the manufacture of dutiable goods. Classification determines the applicable duty rate and eligibility for credit. If goods are classified under a heading attracting duty, credit is permissible; if under a nil-duty heading, credit is not applicable.

Court's Interpretation and Reasoning: Since the Tribunal held that the classification claimed by the appellants was not altered, the goods remained dutiable under 8474.90. Consequently, the duty paid was legitimate, and the Cenvat credit availed on inputs was lawful. The demand for recovery of Cenvat credit and penalty under Section 11AC was therefore set aside.

Key Evidence and Findings: The appellants had paid duty at 16% on exports and availed credit on inputs accordingly. The department's demand of Rs. 14,48,600 plus Education Cess was based on the disputed classification.

Application of Law to Facts: The Tribunal applied the principle that credit is admissible when duty is paid on classified goods. Since classification was not legally changed, credit stands valid.

Treatment of Competing Arguments: The department's contention that credit was not admissible due to nil-duty classification was rejected on procedural and substantive grounds.

Conclusions: The appellants are entitled to Cenvat credit on inputs, and the recovery demand and penalty are set aside.

Issue 3: Jurisdiction over Rebate Recovery and Personal Penalties

Relevant Legal Framework: The Proviso to Section 35B(1) of the Central Excise Act, 1944, restricts the jurisdiction of the Appellate Tribunal in matters relating to rebate claims and recovery thereof. Such matters are to be dealt with by revision authorities.

Court's Interpretation and Reasoning: The Tribunal found that the recovery of Rs. 29,66,342 under Section 11A and personal penalties of Rs. 5 lakhs each against individuals were connected to the rebate claim. Since the Tribunal lacks jurisdiction over rebate matters under the Proviso to Section 35B(1), it dismissed the appeals of the individuals as non-maintainable and granted liberty to file revision applications before the appropriate authority.

Key Evidence and Findings: The impugned order included recovery of rebate and imposition of personal penalties, which the department sought to uphold.

Application of Law to Facts: The Tribunal applied statutory jurisdictional limits and procedural law to exclude itself from adjudicating rebate recovery and personal penalties.

Treatment of Competing Arguments: The department argued that the Tribunal had jurisdiction, but the Tribunal adhered strictly to statutory provisions limiting its jurisdiction.

Conclusions: The Tribunal has no jurisdiction over rebate recovery and personal penalties; these matters must be pursued through revision before the competent authority. Appeals on these points are dismissed as non-maintainable.

SIGNIFICANT HOLDINGS

"Merely by discussing the classification in the body of Show Cause Notice as well as the order will not legally alter the classification. There should be a specific proposal in the SCN as well as clear order in order in original."

"The classification claimed by the appellant attained finality. Only on this basis itself, the appellant's claim of cenvat credit is also correct and legal for the reason that the goods classifiable under Chapter heading 847490 attracts duty accordingly they are entitled for the cenvat credit."

"This Tribunal has no jurisdiction to decide the matter of recovery of rebate and personal penalties in terms of Proviso to Section 35B(1) of Central Excise Act, 1944."

The Tribunal established the core principle that classification once accepted in adjudication cannot be altered without proper procedural compliance, which directly affects entitlement to Cenvat credit. It also clarified jurisdictional boundaries concerning rebate claims and penalties.

Final determinations include: setting aside the demand and penalty related to Cenvat credit recovery; dismissal of appeals related to rebate recovery and personal penalties as non-maintainable; and