2025 (5) TMI 642 - AT - Central Excise

Availment of Cenvat Credit after lapse of considerable time from the rebate sanction orders - Extended period of limitation - HELD THAT - As per appellant they challenged the said rebate orders first at the commissioner (Appeals) level and then before the Joint Secretary to Government of India in revision application. While decision in their revision application before the Joint Secretary to Government of India was getting delayed they decided to take the Cenvat Credit in March 2010 due to financial problems - The order of the Joint Secretary to the Government of India also seen setting aside the impugned Order-in-Appeal/ Order-in-Original and remanded the case back to the original authority to decide a fresh with direction that if any excess duty is paid the same being deposited with the Government is to be returned to the party in the manner in which it was paid . In effect entire rebate amount should have been paid by the rebate sectioning authority in the same mode of payment of Excise Duty. Having said so there are no case from the department s side. Extended period of limitation - HELD THAT - The disputed credit was taken by the appellant on 30/31st March 2010 whereas the show cause notice was issued on October 7th 2013 which is beyond the normal period. The Cenvat Credit taken and utilized by any assessee during a month is reflected in respective ER-1 returns which are filed regularly with the department. The argument that the issue came to light only during audit of the records of the appellant is not convincing. If they had already disclosed availment of credit in ER-1 returns which were in possession of the department appellant cannot be blamed for non scrutiny of the said returns - the show cause notice has been issued beyond the normal period of time and the grounds taken for invoking extended period of limitation are not sustainable. Conclusion - i) If they had already disclosed availment of credit in ER-1 returns which were in possession of the department appellant cannot be blamed for non scrutiny of the said returns. ii) The invocation of extended period of limitation is not sustainable where the facts were disclosed in statutory returns and no suppression or concealment occurred. Appeal allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

- Whether the appellant violated conditions of Notification No. 39/2001-CE dated 31.07.2001 by availing Cenvat Credit of rebate amounts after the exemption period had expired.

- Whether the appellant's delayed availment of Cenvat Credit was an attempt to enhance duty payment through PLA and thereby wrongfully obtain excess cash refund.

- Whether the show cause notice issued in October 2013 for availment of Cenvat Credit in March 2010 is barred by limitation and whether extended period of limitation can be invoked.

- Whether the department's demand for recovery of excess refund along with interest and imposition of penalty under Sections 11A(4) and 11AC of the Central Excise Act, 1944 is justified.

- Whether the appellant's failure to intimate the revision authority after taking Cenvat Credit in March 2010 affects the merits of the case.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Violation of Notification Conditions by Delayed Availment of Cenvat Credit

The relevant legal framework comprises Notification No. 39/2001-CE dated 31.07.2001, which granted exemption to new units in Kutch District for a period of five years from commencement of commercial production. The appellant commenced production on 27.03.2005, making them eligible for exemption until 26.03.2010. Notification No. 16/2008 (NT) dated 27.03.2008 allowed refund at 39% of gross duty paid.

The department alleged that the appellant delayed taking Cenvat Credit of rebate amounts until 30/31 March 2010, after the exemption period expired, to maximize cash rebate. The department contended that had the credit been utilized timely, it would have reduced the duty paid in cash through PLA, thus reducing cash rebate entitlement.

The appellant argued that they did not violate any condition of the notification. They initially challenged the rebate orders before the Commissioner (Appeals) and then before the Joint Secretary (RA), who remanded the matter back to the adjudicating authority with directions that any excess duty paid should be returned in the manner it was paid. The appellant took Cenvat Credit only due to financial constraints and there was no evidence that they maintained unused Cenvat Credit balances or paid duty in cash to claim excess rebate.

The Court examined the facts and the order of the Joint Secretary, which emphasized that the rebate amount should be paid in the same mode as duty payment. No evidence was found from the department to prove that the appellant's delayed credit availment violated notification conditions or was done to wrongfully enhance cash rebate. The Court noted the appellant's bona fide challenge to the rebate orders and their financial difficulties during the pendency of revision proceedings.

Issue 2: Allegation of Wrongful Enhancement of Cash Rebate via Delayed Cenvat Credit

The department's case rested on the premise that delayed availment of Cenvat Credit allowed the appellant to pay more duty in cash through PLA, thus increasing cash rebate. The department sought recovery of Rs. 29.68 lakhs along with interest and penalty under Sections 11A(4) and 11AC of the Central Excise Act, 1944.

The appellant rebutted this by relying on a precedent from the Hon'ble Gujarat High Court, upheld by the Supreme Court, which held that if available credit is utilized first and remaining payment is made through PLA, the conditions of the notification are not violated, and the assessee remains eligible for refund. The appellant also contended that the Cenvat Credit was reflected in ER-1 returns filed regularly and there was no suppression of facts.

The Court found no material to support the department's allegation of wrongful enhancement of cash rebate. The appellant's conduct in taking credit after remand and financial difficulties was not shown to be mala fide or in violation of notification conditions. The Court observed that the appellant's failure to intimate the revision authority about credit availment was a procedural lapse but did not substantiate the department's claim of wrongful enrichment.

Issue 3: Limitation and Invocation of Extended Period

The show cause notice was issued on 07.10.2013, more than three years after the appellant took Cenvat Credit in March 2010. The department invoked the extended period of limitation on the ground that the appellant voluntarily availed the credit and the facts came to light only during audit of Cenvat Credit registers.

The appellant argued that since the Cenvat Credit was disclosed in ER-1 returns regularly filed with the department, the department was aware of the credit availment and could have raised objections within the normal limitation period. They relied on judgments which held that the extended period cannot be invoked if the facts were disclosed and no suppression occurred.

The Court concurred with the appellant's submissions, holding that the issue was disclosed in statutory returns and the department's failure to detect it earlier was not attributable to the appellant. The Court stated: "If they had already disclosed availment of credit in ER-1 returns which were in possession of the department, appellant cannot be blamed for non scrutiny of the said returns." The Court found the grounds for invoking extended period unsustainable and held the demand time barred.

Issue 4: Justification of Demand and Penalty under Sections 11A(4) and 11AC

The department confirmed the demand of Rs. 29.68 lakhs with interest and imposed an equal penalty under Section 11AC, alleging that the appellant delayed availment of Cenvat Credit to wrongfully obtain excess cash refund.

The appellant denied any wrongdoing and emphasized that the credit was taken in good faith during pendency of revision proceedings. The Court noted that the Joint Secretary's order directed that any excess duty paid should be returned in the manner it was paid, implying that the mode of payment should be respected in rebate refunds.

Given the absence of evidence of mala fide conduct or violation of notification conditions, and considering that the appellant disclosed credit availment in returns, the Court concluded that the demand and penalty were not justified.

Issue 5: Failure to Intimate Revision Authority

The appellant admitted that they did not inform the Joint Secretary about taking Cenvat Credit in March 2010. The Court observed this as a procedural lapse but did not treat it as a substantive violation affecting the merits. The Court's reasoning focused on whether the delayed credit availment violated substantive legal provisions or caused wrongful enrichment, which was not established.

3. SIGNIFICANT HOLDINGS

- "If they had already disclosed availment of credit in ER-1 returns which were in possession of the department, appellant cannot be blamed for non scrutiny of the said returns."

- The Court emphasized that "entire rebate amount should have been paid by the rebate sanctioning authority in the same mode of payment of Excise Duty," underscoring the principle that mode of duty payment and refund should correspond.

- The Court held that invocation of extended period of limitation is not sustainable where the facts were disclosed in statutory returns and no suppression or concealment occurred.

- The principle established is that delayed availment of Cenvat Credit during pendency of revision proceedings, without evidence of mala fide intent or violation of notification conditions, does not justify recovery of excess refund or penalty.

- The appeal was allowed both on merits and limitation grounds, with the only procedural fault being the appellant's failure to intimate the revision authority, which did not warrant adverse consequences.