2025 (7) TMI 697 - AT - Central Excise

Issuance of notice to appellant - denial of CENVAT Credit - imposition of penalty equivalent to duty - exemption of Wind Driven Ventilators from excise duty - Non-payment of duty - non-filing of declaration/intimation on crossing of Rs.1.5 crores of value of clearance - HELD THAT - It is noticed from the appeal records that indisputably it is the appellant who had on its own volition approached the Department for registration and had vide its communication dated 11-07-2010 narrated their reasons for belated payment of duty with interest. It is also seen that the appellant had paid the entire duty along with interest prior to issuance of SCN. Pertinently the SCN itself has been issued only on 03.04.2014 after three and a half years from the date of the appellant s intimation. The Hon ble High Court of Karnataka has in its decision in mPortal India Wireless Solutions P Ltd v CST Bangalore 2011 (9) TMI 450 - KARNATAKA HIGH COURT held that requirement of registration with the department is not a condition precedent for claiming Cenvat credit. We also notice that the summary denial of cenvat credit taken by the appellant has been made without any effort taken to verify the invoices on which the appellant had taken such credit. In these circumstances we hold that the denial of cenvat credit taken by the appellant while computing the duty liability was untenable. It is found that the show cause notice has proposed to invoke the proviso to Section 11A(1) on the allegation that the appellant did not register themselves and did not follow procedures and thereby had wilfully suppressed facts and had confirmed the same under the said proviso without noticing the applicable statutory provisions - It is admittedly not the case of the Department that they were the ones to detect any violation by the appellant. On the contrary it is the appellant who had suo-motu approached the department and obtained registration and thereafter vide its letter dated 11.07.2010 stated its reasons for the belated compliance - as the appellant had paid the applicable duty and interest thereon and intimated the same vide it s letter dated 11.07.2010 all that the Department had to do was to verify the correctness of the same and in case of any short payment to have proceeded under Section 11A(3) and issued a notice within the time frame specified; and on the other hand if the payments had been found to be correct to have given a quietus to the issue in terms of Section 11A(2) of the Act. Having not done so the issuance of the SCN dated 03.04.2014 after three and a half years from the date of the appellant s intimation was decidedly unjustified. The impugned order in appeal cannot sustain and is required to be set aside - Appeal allowed.

Summary

The core legal questions considered by the Tribunal in this appeal are:

1. Whether the issuance of a show cause notice (SCN) under the proviso to Section 11A(1) of the Central Excise Act, 1944 was justified against the appellant, given their voluntary payment of duty and interest prior to the SCN.

2. Whether the denial of Cenvat credit claimed by the appellant on the ground of procedural lapses, including non-registration, was legally sustainable.

3. Whether the imposition of penalty equivalent to the duty demanded under Section 11AC of the Central Excise Act was warranted in the absence of wilful misstatement or suppression of facts with intent to evade duty.

Issue 1: Validity of issuance of show cause notice invoking extended period under proviso to Section 11A(1)

Relevant legal framework and precedents: Section 11A of the Central Excise Act governs recovery of duties not levied or paid or short-paid. Subsection (1) provides for issuance of notice within one year from the relevant date where duty is unpaid for reasons other than fraud, collusion, wilful misstatement, suppression of facts, or contravention of provisions with intent to evade duty. The proviso to sub-section (1) and sub-section (4) extend the limitation period to five years where such evasion or wilful acts are established.

Precedents cited include Supreme Court decisions in Continental Foundation Jt. Venture v CCE and Uniworth Textiles v CCE, which establish that extended limitation and penalties apply only where there is evidence of wilful misstatement or suppression of facts with intent to evade duty. The Karnataka High Court decision in mPortal India Wireless Solutions P Ltd v CST clarified that registration is not a condition precedent for claiming Cenvat credit.

Additionally, the Bombay High Court decision in Tharwani Infrastructures (2024) was relied upon, holding that mere delay or procedural lapses without intention to evade payment do not justify invocation of extended limitation or penalties.

Court's interpretation and reasoning: The Tribunal noted that the appellant had voluntarily come forward, obtained registration, and disclosed the belated payment of duty and interest by letter dated 11.07.2010, well before issuance of the SCN on 03.04.2014. The SCN was issued more than three years after the appellant's disclosure and payment.

The Tribunal found no evidence of any positive act of wilful misstatement or suppression with intent to evade duty. The appellant had not collected duty from customers and had discharged duty liability voluntarily. The Department did not detect any violation themselves but relied on the appellant's own intimation.

The Tribunal held that the issuance of SCN after such delay and in these circumstances was unjustified and contrary to the statutory scheme under Section 11A(1)(b), which protects voluntary payment and intimation from penalty and extended limitation.

Key evidence and findings: The appellant's letter dated 11.07.2010 disclosing the crossing of SSI exemption threshold and payment of duty with interest; the challans evidencing payment; absence of any departmental detection of evasion; and the delay of more than three years in issuing the SCN.

Application of law to facts: Since the appellant voluntarily disclosed and paid duty and interest, the protection under Section 11A(1)(b) applied, barring issuance of SCN invoking extended limitation and penalty provisions. The Department's failure to act within one year of such intimation and payment precluded valid invocation of extended period under the proviso.

Treatment of competing arguments: The Department argued wilful suppression due to non-registration and procedural lapses. The Tribunal rejected this, emphasizing absence of malafide intent or evasion, and reliance on settled Supreme Court jurisprudence that extended limitation and penalties require evidence of evasion.

Conclusion: The SCN issued invoking extended limitation and penalty provisions was not sustainable. The appellant was entitled to protection under Section 11A(1)(b).

Issue 2: Denial of Cenvat credit on grounds of procedural lapses including non-registration

Relevant legal framework and precedents: The Karnataka High Court in mPortal India Wireless Solutions held that registration is not a condition precedent for claiming Cenvat credit. The Central Excise Act and related rules permit credit where input duty has been paid and proper invoices are available.

Court's interpretation and reasoning: The Tribunal observed that the adjudicating authority denied Cenvat credit summarily without verifying the invoices on which credit was claimed. The appellant had maintained records and input invoices evidencing payment of duty on inputs.

The Tribunal held that procedural lapses such as delay in registration or non-filing of declarations do not legally justify denial of credit where the appellant is otherwise eligible and has maintained proper documents.

Key evidence and findings: The appellant's records and input invoices; absence of any finding by the adjudicating authority that credit was wrongly availed; no legal provision mandating registration as precondition for credit.

Application of law to facts: The appellant was entitled to Cenvat credit claimed, and denial thereof was untenable.

Treatment of competing arguments: The Department's contention that procedural lapses justified denial of credit was rejected as lacking legal basis and unsupported by evidence.

Conclusion: Denial of Cenvat credit was improper and unsustainable.

Issue 3: Imposition of penalty equivalent to duty under Section 11AC

Relevant legal framework and precedents: Section 11AC of the Central Excise Act authorizes imposition of penalty equal to duty where there is wilful suppression or evasion. Supreme Court decisions require proof of mens rea or intent to evade for penalty imposition.

Court's interpretation and reasoning: The Tribunal found no evidence of wilful suppression or evasion. The appellant had voluntarily disclosed and paid duty and interest. The Department's allegation of suppression based on non-registration and procedural lapses was insufficient to establish intent to evade.

Key evidence and findings: Voluntary disclosure and payment; absence of any concealment or fraud; no departmental detection of evasion; reliance on judicial precedents.

Application of law to facts: Penalty under Section 11AC was not justified without evidence of intent to evade duty.

Treatment of competing arguments: The Department's reliance on procedural lapses was rejected as insufficient to warrant penalty.

Conclusion: Imposition of penalty was not sustainable.

Significant holdings:

"It is a settled position in law by a catena of decisions of the Honourable Supreme Court that when there is no evidence of any positive action of wilful misstatement or suppression of facts with intent to evade payment of duty on the part of the appellant, the extended period of limitation cannot be invoked to demand duty."

"As the appellant had paid the applicable duty and interest thereon and intimated the same vide its letter dated 11.07.2010, all that the Department had to do was to verify the correctness of the same and in case of any short payment, to have proceeded under Section 11A(3) and issued a notice within the time frame specified; and on the other hand, if the payments had been found to be correct, to have given a quietus to the issue in terms of Section 11A(2) of the Act."

"Denial of Cenvat credit taken by the appellant while computing the duty liability was untenable."

"The issuance of the SCN dated 03.04.2014, after three and a half years from the date of the appellant's intimation was decidedly unjustified."

"The imposition of penalty equivalent to the duty demanded under Section 11AC of the Central Excise Act, 1944 is not sustainable in the absence of any evidence of wilful suppression or intent to evade duty."

The Tribunal allowed the appeal, set aside the impugned orders, and granted consequential relief in law, emphasizing that voluntary payment and disclosure protect the appellant from penalty and extended limitation, and that denial of Cenvat credit on procedural grounds was improper.