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2025 (5) TMI 571 - AT - Central ExciseReversal of cenvat credit taken on Special Additional Duty of Customs (SAD) on clearance of input as such to their other unit - extended period of limitation - levy of penalty - HELD THAT - In the present case the appellant has discharged central excise duty and education cess on clearance of their inputs as such from one unit to another but failed to discharge appropriate SAD on the said inputs. Before the adjudicating authority it was argued that they are not required to reverse cenvat credit on the inputs cleared as such being an LTU therefore even though they had paid central excise duty and cess on the inputs cleared as such no liability accrues for not discharging appropriate SAD on the said inputs. A simple reading of the letter reveals that the appellant in the said letter made it very clear that the 4S units will continue as LTUs and the 3S units be permitted to go out of the LTU Bangalore w.e.f. 01.04.2010. Thus it cannot be said that the 4S units came to be registered under LTU w.e.f. 01.04.2010. Thus at the relevant time the appellant continued to be operating as an LTU and accordingly registered with the Department. Therefore the finding of the Commissioner that the appellant became LTU w.e.f. 01.04.2010 only is contrary to the facts; hence cannot be sustained. Regarding the alternate argument of the appellant that since there was no mechanism under Rule 3(5) of the CCR 2004 to recover credit (SAD) under Rule 14 of CCR 2004 on inputs cleared as such under Rule 3(5) the demand of the credit cannot be sustained we find that this Tribunal in the cases of Ericsson India Pvt. Ltd. CCE Jaipur 2019 (3) TMI 776 - CESTAT NEW DELHI and GKN Driveline (India) Ltd. Vs. CCE Delhi-III 2023 (9) TMI 1131 - CESTAT CHANDIGARH observed that recovery of credit under Rule 3(5) (5A) and (5B) prior to 01.03.2013 is bad in law. There are no merit in the impugned order; consequently the same is set aside and appeal is allowed.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered by the Tribunal in this appeal are: (i) Whether the appellant was required to reverse the CENVAT credit taken on Special Additional Duty (SAD) of Customs on the clearance of inputs 'as such' to their other units under the Large Taxpayer Unit (LTU) scheme; (ii) Whether the extended period of limitation was invocable for recovery of the disputed credit; (iii) Whether penalty is imposable on the appellant for the alleged wrongful availing of CENVAT credit; (iv) The applicability and interpretation of Rule 12A of the CENVAT Credit Rules, 2004, vis-`a-vis Rule 3(5) and Rule 3(6) of the said Rules, in the context of inter-unit transfer of inputs under the LTU scheme; (v) The legal validity of the demand for recovery of credit on inputs cleared 'as such' prior to the amendment of the Rules by Notification No.3/2013-CE(NT) dated 01.03.2013. 2. ISSUE-WISE DETAILED ANALYSIS Issue (i): Requirement to Reverse CENVAT Credit on SAD on Inputs Cleared 'As Such' Under LTU Scheme Relevant Legal Framework and Precedents: Rule 12A of the CENVAT Credit Rules, 2004, provides a special procedure for large taxpayers registered under the LTU scheme. It permits removal of inputs (except certain specified goods) from one registered premise to another without payment of duty specified under sub-rule (5) of Rule 3, subject to conditions including the manufacture and clearance of final products on payment of appropriate excise duty within six months. The Rule also prescribes recovery mechanisms if conditions are not met. Rule 3(5) requires reversal of CENVAT credit when inputs are cleared 'as such' without payment of duty. Rule 3(6) allows the receiving unit to avail credit of such inputs. Precedents cited by the appellant include decisions where the LTU scheme benefits were upheld, and recovery of credit on inter-unit transfers was held to be revenue neutral. Court's Interpretation and Reasoning: The Tribunal examined the interplay between Rule 12A and Rule 3(5). It observed that Rule 12A specifically allows a large taxpayer to transfer inputs without reversal of credit under Rule 3(5), overriding the latter. The appellant had discharged central excise duty and education cess on such transfers but did not discharge SAD on inputs cleared 'as such' to sister units. The Tribunal carefully considered the registration status of the appellant under the LTU scheme. The Commissioner had held that the appellant's LTU registration was effective only from 01.04.2010, while the appellant contended it was effective from an earlier date based on correspondence dated 05.03.2010. The Tribunal found the Commissioner's interpretation flawed, noting the letter clearly indicated the appellant's spring units (4S) continued under LTU from before 01.04.2010. Hence, the appellant was registered under LTU during the relevant period. Accordingly, the Tribunal held that the appellant was entitled to the benefit of Rule 12A, and thus was not required to reverse CENVAT credit on SAD on inputs cleared 'as such' to other units under LTU. Key Evidence and Findings: The appellant's letter dated 05.03.2010 requesting continuation under LTU for certain units was a critical piece of evidence. The fact that excise duty and cess were paid on the input transfers was also significant. Application of Law to Facts: Since the appellant was a registered LTU unit during the relevant period, Rule 12A applied, allowing inter-unit transfer of inputs without reversal of credit under Rule 3(5). The failure to reverse SAD credit was not a violation under these circumstances. Treatment of Competing Arguments: The Revenue argued that the appellant was registered under LTU only from 01.04.2010, thereby disallowing Rule 12A benefits for prior periods. The Tribunal rejected this, relying on the appellant's correspondence and registration documents. The Revenue's contention that SAD credit should be reversed was also rejected in light of Rule 12A's overriding effect. Conclusion: The appellant was not required to reverse CENVAT credit on SAD on inputs cleared 'as such' to other units under the LTU scheme during the relevant period. Issue (ii): Invocability of Extended Period of Limitation and Imposability of Penalty Relevant Legal Framework and Precedents: The extended period of limitation under central excise law is generally invoked in cases of fraud, suppression, or willful misstatement. The appellant contended that the demand was barred by limitation and penalty was not imposable. Further, the appellant argued that the mechanism to recover credit under Rule 3(5) with interest under Rule 14 was introduced only by Notification No.3/2013-CE(NT) dated 01.03.2013, and prior to that, recovery was not legally sustainable. Tribunal precedents such as Ericsson India Pvt. Ltd. and GKN Driveline (India) Ltd. were cited, which held that recovery of credit under Rule 3(5) prior to 01.03.2013 was bad in law. Court's Interpretation and Reasoning: The Tribunal agreed with the appellant's submissions and the cited precedents. It held that the extended period of limitation could not be invoked as there was no evidence of fraud or suppression. Moreover, since the recovery mechanism under Rule 3(5) read with Rule 14 was introduced only from 01.03.2013, demands for recovery of credit prior to this date were not sustainable. Key Evidence and Findings: The Tribunal relied on the timeline of amendments and the absence of any fraudulent conduct by the appellant. Application of Law to Facts: The demand for reversal of credit on SAD for the period prior to 01.03.2013 was not valid. Consequently, penalty could not be imposed. Treatment of Competing Arguments: The Revenue's insistence on recovery and penalty was rejected due to lack of legal basis and absence of fraud. Conclusion: The extended period of limitation was not invocable, and penalty was not imposable on the appellant for the disputed period. Issue (iii): Applicability and Interpretation of Rule 12A vis-`a-vis Rule 3(5) and Rule 3(6) Relevant Legal Framework and Precedents: Rule 12A provides a special dispensation for LTU-registered large taxpayers to transfer inputs without reversal of credit under Rule 3(5). Rule 3(6) allows the receiving unit to avail credit on such inputs, making the process revenue neutral. Precedents cited by the appellant support the view that inter-unit transfers under LTU are exempt from reversal requirements and that the entire transaction is revenue neutral. Court's Interpretation and Reasoning: The Tribunal emphasized that Rule 12A overrides Rule 3(5) and that the appellant's payment of excise duty on inputs cleared 'as such' to other units further supports the revenue neutrality of the transaction. It also noted that even if Rule 3(5) was applicable, the receiving unit could avail credit under Rule 3(6), negating any revenue loss. Key Evidence and Findings: The appellant's payment of excise duty and cess on inter-unit transfers and their LTU registration status were crucial. Application of Law to Facts: The appellant's inter-unit transfers complied with Rule 12A conditions, and no reversal of credit was warranted. Treatment of Competing Arguments: The Revenue's reliance on Rule 3(5) was countered by the overriding effect of Rule 12A and the revenue neutrality principle. Conclusion: Rule 12A applies to the appellant's inter-unit transfers, exempting them from reversal of credit under Rule 3(5), and the transaction is revenue neutral under Rule 3(6). Issue (iv): Legal Validity of Demand for Recovery of Credit Prior to 01.03.2013 Relevant Legal Framework and Precedents: The amendment by Notification No.3/2013-CE(NT) dated 01.03.2013 introduced provisions for recovery of credit under Rule 3(5) read with Rule 14. Prior to this, no such recovery mechanism existed. The Tribunal in Ericsson India Pvt. Ltd. and GKN Driveline (India) Ltd. held that recovery of credit prior to this amendment was not sustainable. Court's Interpretation and Reasoning: The Tribunal concurred with the precedents and held that the demand for recovery of SAD credit on inputs cleared 'as such' prior to 01.03.2013 lacked legal basis and was liable to be set aside. Key Evidence and Findings: The timeline of amendments and the absence of any prior recovery mechanism were decisive. Application of Law to Facts: The demand relating to periods before 01.03.2013 was invalid. Treatment of Competing Arguments: The Revenue's contention was rejected due to lack of statutory authority for recovery during the relevant period. Conclusion: The demand for recovery of credit prior to 01.03.2013 is not sustainable. 3. SIGNIFICANT HOLDINGS The Tribunal's crucial legal reasoning includes the following verbatim excerpts: "A plain reading of the said Rule reveals that a large taxpayer unit allowed to remove inputs, except petrol high speed diesel and light diesel oil or capital goods, as such without payment of duty as required under sub rule (5) of Rule 3 of the CCR,2004, to his other registered premises under the cover of a challan or invoice." "The appellant was registered under the LTU scheme during the relevant period and accordingly Rule 12A applies, which overrides Rule 3(5) and exempts the appellant from reversal of CENVAT credit on inputs cleared 'as such' to other units." "Recovery of credit under Rule 3(5), (5A) and (5B) prior to 01.03.2013 is bad in law." "The finding of the Commissioner that the appellant became LTU w.e.f. 01.04.2010 only is contrary to the facts; hence, cannot be sustained." Core principles established:
Final determinations on each issue:
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