2025 (6) TMI 1086 - AT - Central Excise

CENVAT Credit - entitlement to avail 100% cenvat credit on flexographic plates during the period March 2009 to March 2013 or only 50% credit in the year of purchase and the remaining 50% in the subsequent financial year as per Rule 4(2)(a) of Cenvat Credit Rules 2004 - capital goods or inputs - flexographic plates used by the appellant - extended period of limitation - HELD THAT - It is noted that the subject goods viz. flexographic plates qualify to be considered as components of Flexo printing machine and in terms of Rule 2(A)(iii) of Cenvat Credit Rules 2004 the same would qualify to be treated as capital goods and therefore in the financial year in which the same are brought into factory cenvat credit of 50% of the duty paid on the same is eligible to be taken as cenvat credit. However in the present case the cenvat credit which is proposed to be denied being 50% for the month of March 2009 was eligible to be availed in the month of April 2009 and in similar manner for all the years after the entry into next financial year the remaining 50% amount of cenvat credit proposed in the show cause notice for denial was eligible for availment. The last financial year dealt with in the proceedings is 2012-13 and 50% cenvat credit denied for being availed in 2012-13 was eligible to be availed in April 2013. Therefore by the time show cause notice was issued the entire cenvat credit availed by the appellant was eligible to be availed. Therefore invocation of Rule 14 for denial of the said cenvat credit at a stage when the said cenvat credit was admissible to be taken is not in accordance with law. The impugned order is set aside - appeal allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

- Whether flexographic plates used by the appellant qualify as capital goods under Rule 2(A)(iii) of the Cenvat Credit Rules, 2004, or as inputs eligible for full cenvat credit?

- Whether the appellant was entitled to avail 100% cenvat credit on flexographic plates during the period March 2009 to March 2013, or only 50% credit in the year of purchase and the remaining 50% in the subsequent financial year as per Rule 4(2)(a) of Cenvat Credit Rules, 2004?

- Whether the demand for recovery of 50% of the cenvat credit availed on flexographic plates, along with interest and penalty, under Rule 14 of the Cenvat Credit Rules, 2004 read with proviso to Section 11A(1) of the Central Excise Act, 1944, is sustainable?

- Whether the extended period of limitation for issuing the show cause notice is applicable in the facts of the case, given the appellant's regular filing of returns under Central Excise and Service Tax provisions?

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Classification of Flexographic Plates as Capital Goods or Inputs

The legal framework involves the definition of capital goods under Rule 2(A)(iii) of the Cenvat Credit Rules, 2004, which includes components or spares of machinery. The appellant imported flexographic plates classified under Chapter 37 of the Customs Tariff and treated them as inputs eligible for full cenvat credit. The Revenue contended that these plates are components of flexographic printing machines and thus qualify as capital goods.

The Court examined the nature and use of the flexographic plates, noting that they are specific to printing designs and once used for a particular design, cannot be reused. The plates are integral to the printing machine's functioning and thus fall within the ambit of components of machinery.

The Court agreed with the Revenue's interpretation that flexographic plates are capital goods under Rule 2(A)(iii), superseding the appellant's classification as inputs. This classification is pivotal because it affects the manner and timing of cenvat credit availment.

Issue 2: Entitlement to Cenvat Credit - 100% vs. 50% in Year of Purchase and Subsequent Year

Rule 4(2)(a) of the Cenvat Credit Rules, 2004, prescribes that for capital goods, only 50% of the duty paid can be availed as cenvat credit in the financial year in which the goods are brought into use, and the remaining 50% in the next financial year. The appellant availed 100% credit upfront during March 2009 to March 2013, contrary to this provision.

The Revenue issued a show cause notice demanding recovery of the excess 50% credit availed prematurely, along with interest and penalty.

The appellant argued that the remaining 50% credit, which should have been availed in the next financial year, was in fact availed in due course before the issuance of the show cause notice in March 2014, making the entire credit ultimately admissible. Further, the appellant contended that this situation rendered the Revenue's demand revenue neutral.

The Court analyzed the timeline of credit availment and found that the 50% cenvat credit denied for March 2009 was admissible from April 2009 onwards, and similarly for subsequent years. By the time of the show cause notice, the appellant had availed the entire credit as per the staggered schedule mandated by the Rules.

Therefore, the Court held that the appellant was entitled to the full cenvat credit, albeit staggered over two financial years, and since the appellant had ultimately availed the entire credit lawfully, the Revenue's demand for denial of 50% credit was not tenable.

Issue 3: Validity of Demand for Recovery, Interest, and Penalty under Rule 14 and Section 11A(1)

The Revenue invoked Rule 14 of the Cenvat Credit Rules, 2004, which empowers recovery of wrongly availed credit, and the proviso to Section 11A(1) of the Central Excise Act, 1944, imposing interest and penalty.

Given the Court's finding that the entire cenvat credit was admissible over the relevant period, the premise for invoking Rule 14 to deny 50% credit and recover the amount was undermined. The Court concluded that the demand for recovery, interest, and penalty was not sustainable because the appellant had not availed excess credit beyond what was permissible under the law, only the timing of credit availment differed.

Issue 4: Applicability of Extended Period of Limitation

The appellant contended that since they were regularly filing ER-1 returns under Central Excise and Service Tax provisions, the extended period of limitation for issuing the show cause notice was not applicable, relying on the Supreme Court ruling in the cited precedent.

The Court noted this contention but did not find it necessary to delve deeply into limitation as the primary issue of admissibility of credit was dispositive. However, the argument reinforced the appellant's position that the show cause notice was not sustainable on procedural grounds as well.

3. SIGNIFICANT HOLDINGS

"The subject goods viz. flexographic plates qualify to be considered as components of Flexo printing machine and in terms of Rule 2(A)(iii) of Cenvat Credit Rules, 2004, the same would qualify to be treated as capital goods."

"The cenvat credit which is proposed to be denied being 50% for the month of March 2009 was eligible to be availed in the month of April 2009 and in similar manner for all the years after the entry into next financial year, the remaining 50% amount of cenvat credit proposed in the show cause notice for denial was eligible for availment."

"By the time show cause notice was issued, the entire cenvat credit availed by the appellant was eligible to be availed. Therefore, invocation of Rule 14 for denial of the said cenvat credit at a stage when the said cenvat credit was admissible to be taken is not in accordance with law."

The Court established the core principle that classification of goods as capital goods under the Cenvat Credit Rules mandates staggered credit availment, but if the entire credit is ultimately availed lawfully, denial and recovery demands are unsustainable.

The final determination was to set aside the impugned order and allow the appeal, confirming that the appellant was entitled to the full cenvat credit on flexographic plates as capital goods, availed in accordance with the prescribed timeline, and that the demand for recovery, interest, and penalty was not justified.