2025 (5) TMI 1749 - AT - Central Excise

CENVAT credit of excise duty paid on maize starch for manufacture of Baking powder - entitlement for concessional rate of duty @ 1% or 2% for Custard powder and Icing sugar - demand of excise duty on corn flour treating it as maize starch - suppression of facts with intent to evade payment of duty - invocation of extended period of limitation - levy of penalty under Rule 26. CENVAT credit of excise duty paid on maize starch for manufacture of Baking powder - only ground for denial of credit is that it cannot be extended for the period prior to Excise Registration - HELD THAT - It is a settled principle in law that the benefit of credit cannot be denied to a manufacturer for the period prior to Registration - In a catena of decisions the Courts and the Tribunal have consistently allowed Cenvat credit on inputs and input services prior to registration - there are no hesitation in holding that the denial of cenvat credit is not tenable and hold that the appellant is entitled for Cenvat credit as claimed by them on the raw materials used in the manufacture of Baking Powder. Entitlement for concessional rate of duty @ 1% or 2% for Custard powder and Icing sugar - HELD THAT - The appellant did not dispute the excisability of Custard powder and Icing sugar but they claimed the effective rate of 1% from 01.03.2011 to 16.03.2012 and 2% from 17.03.2012 as per Notification No.01/2011-CE dated 01.03.2011 as amended. Even though the adjudicating authority has recorded the above claims of the appellant he has not given any findings while passing the order but simply confirmed the duty as proposed in the show cause notice. It is noticed that Custard powder is specifically classifiable under Tariff Item 2106 90 80 of Central Excise Tariff and the show cause notice also adopted the same and hence we find force in the claim of the appellant and accordingly the custard powder manufactured by the appellant is entitled for 1% rate prescribed under Sl.No. 19 of Notification No. 01/2011-CE dated 01.03.2011 upto 16.03.2012 and then 2% with effect from 17.03.2012 - With regard to the claim of concessional rate for icing sugar it is observed that there is no merit in the claim of appellant as it is neither a food mix nor ready to eat packaged food as specified in Sl. No. 22 of the above notification. There is a demand of duty on Drinking Chocolate manufactured amounting to Rs.33, 415/- for the period from 2009-10 to 2013-14. The Appellant has not submitted any arguments relating to the dutiability or otherwise on this commodity. As such it is taken that the duty on the commodity has been accepted by the appellant. Demand of duty on corn flour - HELD THAT - The appellant vide their reply to Show Cause Notice contended that the Barnd Name Bakers is registered for Corn Flour only and no prudent person manufacturing maize starch would approach the Registrar of Trade Mark and get Bakers Trade Mark for Corn Flour. Further they contended in the reply that if it is maize starch as claimed by the Department then there is no brand name for maize starch and in such case duty demand on the ground of other man s brand name does not survive. However the Adjudicating Authority has not examined the above points but simply confirmed the demand. Demand of excise duty on corn flour treating it as maize starch - HELD THAT - It is evidenced from the records that the appellant market the product as corn flour and it is specifically covered under Tariff Item 1102 20 00 and hence we have no hesitation in accepting the classification adopted by the appellant - The demand of duty on Corn Flour is not legally sustainable and hence set aside. As the demand itself is not sustainable the question of imposition of penalty does not arise. Suppression of facts with intent to evade payment of duty - invocation of extended period of limitation - HELD THAT - It has been a well settled law that in matters relating to technical interpretation and classifications suppression of fact / wilful misstatement has to be used with utmost caution and justification. Since we have held that the classification adopted by the department is not sustainable and the other products attract concessional rate as contended by the appellant the allegation of intention to evade payment of duty does not survive. The demand for the normal period of one year alone would survive. However it is noticed that though the notice was issued on 07.05.2014 a corrigendum was issued on 14.11.2014 by modifying various paras of the notice thereby resulting in increasing the duty amount demanded and hence the corrigendum date would be taken as the date of show cause notice. Consequently the entire demand made in the Show Cause Notice No. 04/2014 dated 07.05.2014 as amended by corrigendum dated 14.11.2014 is beyond the time limit of one year as demand of duty covered the period from 2009-10 to 14.08.2013 and therefore the entire demand made in this notice is hit by time limit. However the demand made in the periodical notices are within the time limit. Levy of penalty under Rule 26 - HELD THAT - Once extended period is not invokable the question of imposing mandatory penalty under Section 11AC does not arise. Further when the entire demand under Notice No. 04/2014 dated 07.05.2014 is set aside the question of imposing any penalty does not arise - During the period covered under the periodical notices Section 11AC prescribes equal amount of penalty only in cases of suppression with intention to evade and in the cases of periodical notices no such penalty can be imposed. Accordingly the penalty imposed under Section 11AC for the periodical notices set aside - When the penalty on the firm is set aside for the reasons stated above imposition of penalty on the partner of the appellant firm is also not justified. Conclusion - i) The appellant is liable to pay excise duty on Baking Powder Custard Powder Icing Sugar and Drinking Chocolate but is entitled to Cenvat credit on inputs for Baking Powder and concessional duty rates on Custard Powder. The demand on Corn Flour was set aside. ii) The extended period for demand and penalty was not invokable due to absence of wilful suppression. Consequently penalties imposed were set aside including on the individual partner. Appeal allowed in part.

Summary

The core legal questions considered by the Tribunal in these appeals are as follows:

i. Whether the appellant is entitled to Cenvat credit of excise duty paid on maize starch used in the manufacture of Baking Powder, including for the period prior to obtaining Central Excise registration?

ii. Whether the appellant is entitled to the concessional rates of excise duty at 1% or 2% on Custard Powder and Icing Sugar under Notification No. 01/2011-CE dated 01.03.2011?

iii. Whether the demand of excise duty on Corn Flour, treating it as Maize Starch for classification and levy purposes, is sustainable?

iv. Whether there was suppression of facts with intent to evade payment of duty, thereby justifying invocation of the extended period of limitation under Section 11A(4) of the Central Excise Act, 1944, and imposition of penalty under Section 11AC?

v. Whether penalty under Rule 26 of the Central Excise Rules, 2002, is imposable on the partners of the appellant firm?

Issue-wise Detailed Analysis:

i. Entitlement to Cenvat Credit on Maize Starch for Manufacture of Baking Powder

The appellant admitted duty liability on Baking Powder but claimed entitlement to Cenvat credit on inputs, primarily maize starch, including for the period prior to excise registration. The department denied credit on the ground that the appellant had not fulfilled the requirements of Rules 9(5), 9(6), and 9(7) of the CENVAT Credit Rules, 2004, and that credit cannot be availed retrospectively for periods prior to registration.

The Tribunal referred to settled legal principles and precedents such as Well Known Polyesters Ltd., Icon Industries, and Embassy Property Development, which establish that Cenvat credit cannot be denied merely because the manufacturer was unregistered during the relevant period. The key reasoning is that manufacturers exempted from registration do not cease to be manufacturers, and credit on duty paid inputs can be availed subsequently, provided proper documents exist. The department did not dispute the duty-paid nature of the maize starch inputs, and the appellant furnished invoice-wise details supporting their claim.

The Tribunal held that the denial of Cenvat credit was not tenable and the appellant was entitled to credit as claimed, applying the law consistently with judicial precedents.

ii. Applicability of Concessional Rates of Duty on Custard Powder and Icing Sugar

The department demanded excise duty on Custard Powder and Icing Sugar at rates ranging from 5% to 12% as per earlier notifications. The appellant contended that these products attract concessional rates of 1% (up to 16.03.2012) and 2% (from 17.03.2012) under Notification No. 01/2011-CE dated 01.03.2011, which provides for reduced rates when no Cenvat credit is availed.

The Tribunal examined the relevant notification, which exempts goods from duty in excess of 1% where no Cenvat credit is claimed, specifically covering "all kinds of food mixes including instant food mixes" under Tariff Item 2106 90. The appellant's Custard Powder was recognized as a food mix ready for use, and no Cenvat credit was claimed on it.

The Tribunal found merit in the appellant's claim for concessional rates on Custard Powder and accordingly held that the effective duty rates are 1% up to 16.03.2012 and 2% thereafter. However, the claim for concessional rates on Icing Sugar was rejected, as it is not a food mix or ready-to-eat packaged food under the notification.

iii. Sustainability of Excise Duty Demand on Corn Flour Treated as Maize Starch

The department alleged that the appellant cleared dutiable maize starch repacked as corn flour, thus attracting excise duty under Tariff Item 1108 12 00 at 4%. The appellant contended that the product is corn flour, recognized as such in the market, and that their process involved only drying, sieving, and packing of duty-paid maize starch, which does not amount to manufacture attracting duty. They relied on the "common parlance test" and submitted that the brand name "Bakers" is registered for corn flour only, not maize starch.

The Tribunal analyzed the classification under the Central Excise Tariff Act and HSN explanatory notes. It distinguished between cereal flours (Chapter 11, Heading 1102) and starches (Heading 1108), noting that corn flour falls under Heading 1102 20 00 and is exempt from duty. The department failed to produce evidence that the product was marketed or known as maize starch, or that the appellant's classification was incorrect.

The Tribunal relied on Supreme Court precedents emphasizing the burden of proof on the Revenue to establish classification and noted that the appellant's claim was supported by market practice and documentary evidence. The Tribunal held that the demand of duty on corn flour was not sustainable and set aside the demand and associated penalties.

iv. Suppression of Facts and Invocation of Extended Period for Demand and Penalty

The department invoked the extended period of limitation under Section 11A(4) of the Central Excise Act, alleging suppression of facts with intent to evade duty, justifying extended period demand and penalty under Section 11AC. The appellant contended that there was no suppression, as all clearances were accounted for in their books, and the failure to obtain registration was based on a bona fide belief that their products were not dutiable.

The Tribunal referred to authoritative Supreme Court decisions including Chemphar Drugs & Liniments, Pushpam Pharmaceuticals, and Northern Operating Systems, which require that suppression or misstatement must be wilful and deliberate with intent to evade duty to invoke extended period and penalty. Mere omission or error without intent is insufficient.

Given that the classification and dutiability issues were contentious and the appellant's explanations were plausible, the Tribunal found no evidence of wilful suppression or intent to evade duty. Consequently, the extended period invocation was rejected, and the demand made beyond the normal limitation period was held time-barred.

v. Imposability of Penalty under Rule 26 on Partners of the Firm

Since the demand and penalty on the appellant firm were set aside or reduced, the Tribunal held that imposition of penalty on the individual partner was not justified. Rule 26 penalty is linked to the firm's liability, and absent a valid demand or penalty on the firm, personal penalty cannot be sustained.

Significant Holdings:

"It is a settled principle in law that the benefit of credit cannot be denied to a manufacturer for the period prior to Registration."

"The classification of corn flour has been settled... The burden is on the Revenue to support its contention with evidence... The Revenue has failed to establish the contrary."

"Suppression of facts with intent to evade payment of duty must be wilful and deliberate. Mere omission or bona fide error is insufficient to invoke extended period or penalty."

"The appellant is entitled for concessional rate of 1% for custard powder as prescribed under Sl.No. 19 of Notification No. 01/2011-CE dated 01.03.2011 upto 16.03.2012 and then 2% with effect from 17.03.2012."

"The demand of duty on Corn Flour is not legally sustainable and hence set aside. As the demand itself is not sustainable, the question of imposition of penalty does not arise."

"Once extended period is not invokable, the question of imposing mandatory penalty under Section 11AC does not arise."

"Penalty on the partner of the appellant firm is also not justified when the penalty on the firm is set aside."

The Tribunal's final determinations were that the appellant is liable to pay excise duty on Baking Powder, Custard Powder, Icing Sugar, and Drinking Chocolate, but is entitled to Cenvat credit on inputs for Baking Powder and concessional duty rates on Custard Powder. The demand on Corn Flour was set aside. The extended period for demand and penalty was not invokable due to absence of wilful suppression. Consequently, penalties imposed were set aside, including on the individual partner.