2025 (6) TMI 179 - AT - Central Excise

Recovery of inadmissible CENVAT credit with interest and penalty - iron and steel items - security services - Wrong utilization of CENVAT Credit of Ed Cess SHE cess for payment of central excise duty - levy of penalty. Whether the CENVAT Credit of Rs 1, 00, 556/- taken by the appellant in respect of Structural platforms flat rolled products of iron/ steel and hot rolled alloy steel plates would be admissible to them? - extended period of limitation - HELD THAT - Appellants have claimed the CENVAT Credit in respect of Structural platforms flat rolled products of iron/ steel and hot rolled alloy steel plates under the category of Capital Goods as defined by Rule 2 (a) of the CENVAT Credit Rules 2004. However subsequently they have changed their stand and have claimed that these goods should be treated as inputs as defined by Rule 2(k) ibid. They have used these goods for the manufacture of the capital goods used in manufacture of the finished goods - it is found that subsequently appellant has changed his stand and by relying on the decisions of this tribunal and various High Court they have claimed that this credit would be admissible to them under the category of inputs as these goods have been used by them for the manufacture of capital goods used within their factory. Appellant has made this claim only on the basis of the decisions without showing as to how these decisions would be applicable in their case. Assuming the claim made by the appellant is admissible then also the same will have to be established by way of the documents and evidences. If the appellant has used these goods for the manufacture of capital goods then fact of manufacture would have been reflected in their registration certificate and the monthly ER-1 return filed by them. The definition of inputs as per Rule 2 (k) of CENVAT Credit Rules 2004 was amended by Notification No 16/2009-CE (NT) and it was provided that cement angles channels CTD or TMT bar and other items used for construction of shed building or structure for support of capital goods would not be covered by the definition of inputs. In the present case the entire period is after the amendments made in the year 2009 to the definition of inputs as per Rule 2 (l) of Cenvat Credit Rules 2004. Thus there is no merits in the claim of the appellant that these goods be treated as inputs. Further it is also noted that appellant has taken cenvat credit in respect of these goods fully aware that the credit would not be admissible in respect of these goods under the category of capital goods or inputs they have contravened the provision of Rule 9 (5) of the Cenvat Credit Rules 2004 with intent to utilize the same for payment of central Excise duty. Impugned order has in para 4.11 recorded the reasons for invoking the extended period of limitation which have not been refuted by the appellant. Thus the extended period of limitation has been rightly invoked for making this demand. Whether the CENVAT Credit of Rs 1, 12, 442/- taken by the appellant in respect of security services provided in the residential colony would be admissible to them? - HELD THAT - There are no merits in the submissions made by the appellant. A single member of tribunal could not have in case of Ultratech Cement referred by the appellant ruled against the above decisions on the point of law. He could have only distinguished on facts to hold that these decisions are not applicable. However as it is found the issue to be squarely covered by the above decisions of High Court there are no merits in the arguments advanced. From the perusal of the above amendment made in 2011 it is evident that service which were meant for personal consumption of the employees have been kept out of the purview of the definition of the input services. The intention of the amendment is evident from the use of phrase when such services are used primarily for personal use or consumption of any employee; . Though security services are not specifically stated in the first part of the exclusion clause however the above phrase make it evident that services meant for personal consumption of employees have been excluded. This view is in line with the decision of Hon ble High Court of Gujarat and Bombay wherein even in respect of the un-amended definition they have ruled against the admissibility of the credit - Impugned order has recorded the reasons for invoking the extended period of limitation which have not been refuted by the appellant. Whether appellant could have utilized the CENVAT Credit of Ed Cess and SHE Cess for payment of Central Excise duty during the month of March 2015? - HELD THAT - In case of Genus Paper Boards Ltd. 2023 (9) TMI 711 - CESTAT ALLAHABAD the view is taken in favour of such cross utilization of the credit. However this view was taken as decision of the Hon ble Delhi High Court specifically on the subject was not brought to my notice. Thus the decision rendered in ignorance of the binding decision of Hon ble Delhi High Court is per incurriam. However the fact of cross utilization of the accumulated CENVAT Credit of education cess and higher education cess for the purpose of payment of central excise duty during the month of March 2015 was reflected in ER-1 return of the appellant. Thus this demand made by invoking extended period of limitation by a show cause notice dated 09.10.2019 cannot be upheld. It is also found that the impugned order does not record any findings on the issue of limitation. Order in original records that the appellant has never disclosed the fact of utilization of the accumulated CENVAT Credit of Edu Cess and SHE Cess during the month of March 2015 for payment of Central Excise duty is contrary to the fact that the appellant had filed the ER-1 returns for that period wherein the said utilization of credit would have been reflected. The demand has been made after the decision of Hon ble High Court referred earlier. A change in opinion on the basis of subsequent decision of High Court cannot be reason for invoking the extended period of limitation. Whether penalty have been rightly imposed upon the appellant? - HELD THAT - As it is held held in favour of invocation of extended period of limitation for these two demands penalty imposed in respect of these demand in terms of Rule 15 (2) of CENVAT Credit Rules 2004 reqad with Section 11AC of Central Excise Act 1944 cannot be faulted with. Conclusion - i) CENVAT Credit of Rs.1, 00, 556/- taken by the appellant in respect of Structural platforms flat rolled products of iron/ steel and hot rolled alloy steel plates would not be admissible to them. Demand Upheld. ii) CENVAT Credit of Rs 1, 12, 442/- taken by the appellant in respect of security services provided in the residential colony would not be admissible to them. Demand upheld. iii) Demand made in respect of utilization the CENVAT Credit of Ed Cess and SHE Cess for payment of Central Excise duty during the month of March 2015 is dropped as barred by limitation. iv) Demand of interest in respect of demand confirmed is upheld. v) Penalty in respect of demand confirmed is upheld under Rule 15 (2) of CENVAT Credit Rules 2004 read with Section 11AC of Central Excise Act 1944. Appeal allowed in part.

Summary

1. ISSUES PRESENTED and CONSIDERED

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

(i) Whether the CENVAT credit of Rs. 1,00,556/- availed on structural platforms, flat rolled products of iron/steel and hot rolled alloy steel plates qualifies as admissible credit under the CENVAT Credit Rules, 2004, specifically as capital goods or inputs;

(ii) Whether the CENVAT credit of Rs. 1,12,442/- availed on security services provided in the residential colony qualifies as admissible input service credit under Rule 2(l) of the CENVAT Credit Rules, 2004;

(iii) Whether the appellant was entitled to utilize the CENVAT credit of Education Cess (Ed Cess) and Secondary & Higher Education Cess (SHE Cess) for payment of Central Excise duty during March 2015;

(iv) Whether the penalty imposed under Rule 15(2) of the CENVAT Credit Rules, 2004 read with Section 11AC of the Central Excise Act, 1944, and under Section 78(1) of the Finance Act, 1994, was justified;

(v) Related issues of invocation of extended period of limitation for recovery of disputed credits and demand of interest on confirmed dues.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (i): Admissibility of CENVAT Credit on Structural Platforms, Flat Rolled Iron/Steel Products and Hot Rolled Alloy Steel Plates

Legal Framework and Precedents: The definition of "capital goods" under Rule 2(a) of the CENVAT Credit Rules, 2004, includes machinery and specified items such as pollution control equipment, moulds, dies, refractories, tubes, pipes, fittings, and storage tanks. The term "inputs" under Rule 2(k) excludes certain items used for construction of sheds or structures supporting capital goods, as clarified by Notification No. 16/2009-CE (NT) dated 07.07.2009. The appellant relied on various judicial precedents including decisions of High Courts and Tribunals (e.g., Ambuja Cement Eastern Ltd., Rajasthan Spinning & Weaving Mills Ltd., Associated Cement Company Ltd.) to contend that these iron and steel items qualify as inputs used in manufacture of capital goods.

Court's Interpretation and Reasoning: The Tribunal examined the definitions and noted that the appellant initially availed credit on these goods as capital goods under Rule 4(2)(a) of the CENVAT Credit Rules, which allows credit of only 50% of duty paid on capital goods in a financial year. The Tribunal observed that the appellant later changed its stand to claim these goods as inputs used for manufacture of capital goods but failed to produce any documentary evidence such as ER-1 returns or accounts showing manufacture of capital goods using these items. The Tribunal referred to the Supreme Court's decision in Saraswati Sugar Mill which held that iron and steel structures are not components or integral parts of machinery and thus do not qualify as capital goods. It also relied on Circular No. 276/110/96-TRU and subsequent judicial pronouncements emphasizing the "user test" for classification of capital goods.

Key Evidence and Findings: The appellant did not disclose the names of capital goods allegedly manufactured or provide supporting accounts or returns. The Tribunal found that the appellant's claim was an afterthought to evade duty liability. The amendment to the definition of inputs in 2009 explicitly excluded items like angles, channels, and bars used in construction of sheds or structures supporting capital goods from being treated as inputs.

Application of Law to Facts: The Tribunal applied the statutory definitions and judicial tests, concluding that the disputed iron and steel items do not qualify as capital goods or inputs. The appellant's failure to provide evidence and the statutory amendment excluding such items from inputs led to rejection of the credit claim.

Treatment of Competing Arguments: The appellant's reliance on various favorable case laws was rejected due to lack of factual similarity and absence of supporting evidence. The Tribunal emphasized the principle that judicial decisions are fact-specific and cannot be mechanically applied without examining the facts of each case.

Conclusion: The CENVAT credit of Rs. 1,00,556/- on the disputed iron and steel items was rightly disallowed and the demand upheld.

Issue (ii): Admissibility of CENVAT Credit on Security Services Provided in Residential Colony

Legal Framework and Precedents: Rule 2(l) of the CENVAT Credit Rules, 2004 defines "input service" as any service used by the manufacturer directly or indirectly in or in relation to manufacture and clearance of final products, including specified activities. The Tribunal examined the scope of "input service" and noted judicial precedents including decisions of Gujarat High Court (Gujarat Heavy Chemicals Ltd.) and Bombay High Court (Manikgarh Cement) which held that services provided in residential colonies for employees are welfare activities and not integrally connected to the manufacturing business, thus not qualifying as input services. The appellant relied on a contrary decision of Andhra Pradesh High Court (ITC Limited) which was distinguished.

Court's Interpretation and Reasoning: The Tribunal observed that provision of residential quarters and security services therein is a voluntary welfare activity without nexus to manufacture or clearance of final products. The definition of input service excludes services primarily for personal use or consumption of employees, as clarified by Notification No. 3/2011-CE (NT) dated 01.03.2011. The Tribunal held that security services in the residential colony do not satisfy the nexus requirement and thus credit on such services is inadmissible.

Key Evidence and Findings: The appellant admitted providing security services in residential quarters. No evidence was produced to show that such services were related to manufacturing or clearance activities. The Tribunal relied on well-established judicial precedents.

Application of Law to Facts: Applying the legal definition and judicial tests, the Tribunal concluded that the credit availed on security services was inadmissible.

Treatment of Competing Arguments: The appellant's reliance on ITC Limited was rejected as the decision did not override binding High Court precedents. The Tribunal noted that a single member Tribunal decision cannot overrule High Court rulings.

Conclusion: The CENVAT credit of Rs. 1,12,442/- on security services provided in the residential colony was rightly disallowed and the demand upheld.

Issue (iii): Utilization of CENVAT Credit of Education Cess and SHE Cess for Payment of Central Excise Duty

Legal Framework and Precedents: Rule 3(7)(b) of the CENVAT Credit Rules, 2004, as amended by Notification No. 12/2015-Central Excise (NT) dated 30.04.2015, permits utilization of Ed Cess and SHE Cess credit for payment of excise duty only for inputs, capital goods, or input services received on or after 1st March 2015. The appellant contended that the credit utilized related to the period prior to 01.03.2015 and relied on the concept of "subsumation" of these cesses into excise duty as per the Finance Minister's Budget speech and the decision in Genus Paper & Boards Ltd. The revenue relied on the decision of Delhi High Court in Cellular Operators Association of India which held that cross-utilization of EC and SHE credit against excise duty was not permissible and that such credit is not a vested right.

Court's Interpretation and Reasoning: The Tribunal noted that the appellant utilized credit of Ed Cess and SHE Cess relating to the period prior to 1st March 2015, before the amendment allowing such utilization. The Tribunal held that the amendment was prospective and did not confer any vested right to cross-utilize pre-existing credits. The Tribunal relied on the Delhi High Court decision which emphasized that the cesses and excise duty are distinct and cross-utilization was never permitted. The Tribunal further relied on the Supreme Court decision in B.K. Industries which rejected the argument that budget speeches or ministerial statements create enforceable rights. The Tribunal held that the word "subsumed" in the budget speech does not imply cross-utilization of credits.

Key Evidence and Findings: The appellant's ER-1 returns reflected utilization of the credit, but the utilization was prior to the date from which such credit utilization was allowed. The Tribunal found that the demand was time-barred as the appellant had disclosed the utilization in returns.

Application of Law to Facts: The Tribunal applied the statutory provisions, judicial precedents, and legislative intent to conclude that the demand for credit utilized prior to 01.03.2015 was barred by limitation and the appellant was not entitled to cross-utilize the credit before the amendment.

Treatment of Competing Arguments: The appellant's reliance on Genus Paper & Boards Ltd. was rejected as per incuriam since it did not consider binding Delhi High Court precedent. The Tribunal distinguished the budget speech and ministerial statements as non-binding.

Conclusion: The demand for utilization of Ed Cess and SHE Cess credit prior to 1st March 2015 was held barred by limitation and was dropped.

Issue (iv): Imposition of Penalty and Interest

Legal Framework and Precedents: Penalty under Rule 15(2) of the CENVAT Credit Rules, 2004 read with Section 11AC of the Central Excise Act, 1944 is mandatory once demand is confirmed for wrongful availment of credit. The Supreme Court in Rajasthan Spinning and Weaving Mills Ltd. held that once conditions for penalty under Section 11AC are satisfied, the authority has no discretion and must impose penalty equal to the duty amount. Interest under Section 11AA of the Central Excise Act and Section 75 of the Finance Act, 1994 is payable on confirmed demands.

Court's Interpretation and Reasoning: Since the Tribunal upheld the demands for inadmissible credit on iron and steel items and security services, it also upheld the penalty imposed. The Tribunal found that the appellant suppressed material facts and availed inadmissible credit knowingly, justifying invocation of extended limitation period and penalty. Interest demands were also upheld on confirmed dues.

Key Evidence and Findings: The appellant failed to disclose details of inadmissible credits and the facts came to light only during audit. The penalty and interest were imposed as per statutory provisions.

Application of Law to Facts: The Tribunal applied mandatory penalty provisions and interest provisions to the facts, finding no error in the adjudicating authority's order.

Treatment of Competing Arguments: The appellant's contention that penalty was not sustainable was rejected based on binding Supreme Court authority.

Conclusion: Penalty and interest were rightly imposed and upheld.

3. SIGNIFICANT HOLDINGS

"The CENVAT credit of duty paid on the disputed iron and steel items were taken by the appellant considering them as capital goods only and not inputs. The appellant failed to produce any evidence of manufacture of capital goods using these items and thus the credit is inadmissible." (Para 4.7-4.9)

"The security services provided in the residential colony are voluntary welfare activities without any nexus to manufacture or clearance of final products and hence do not qualify as input services under Rule 2(l) of the CENVAT Credit Rules, 2004." (Para 6.1-6.4)

"The credit of Education Cess and Secondary and Higher Education Cess paid on inputs or capital goods prior to 1st March 2015 cannot be utilized for payment of Central Excise duty as cross-utilization was not permitted before the amendment. The appellant's claim of vested right based on budget speech is not sustainable." (Para 5.1-5.8)

"Once the conditions for imposition of penalty under Section 11AC of the Central Excise Act, 1944 read with Rule 15(2) of the CENVAT Credit Rules, 2004 are satisfied, the authority has no discretion and penalty equal to the duty amount must be imposed." (Para 4.16)

"Extended period of limitation under Section 11A(4) of the Central Excise Act, 1944 read with Rule 14 of the CENVAT Credit Rules, 2004 is rightly invoked where the appellant suppressed material facts to wrongly avail credit." (Para 4.11, 6.5)

Final determinations:

• CENVAT credit of Rs. 1,00,556/- on iron and steel items disallowed and demand upheld.
• CENVAT credit of Rs. 1,12,442/- on security services disallowed and demand upheld.
• Demand for utilization of Ed Cess and SHE Cess credit prior to 1.3.2015 dropped as barred by limitation.
• Penalty and interest on confirmed demands upheld.