Cenvat Credit of duty paid in Settlement proceedings

PJ/Case Laws/2011-12/1485

Cenvat Credit of duty paid in Settlement proceedings - admissibility of

Case: INDIAN OIL CORPORATION LTD. versus COMMISSIONER OF C. EX., MUMBAI

Citation: 2011 (274) E.L.T. 561 (Tri. - Mumbai)

Issue:- Settlement of case and duty paid – whether cenvat credit of duty so paid available when allegation of suppression was raised in SCN?

Brief Facts:- The Appellant has taken CENVAT credit on the strength of a supplementary invoice issued by M/s Chennai Petroleum Corporation Limited (CPCL) which evidenced payment of additional duty of excise by M/s CPCL On LOPS. Against M/s CPCL, the department has issued a show cause notice for demanding such additional duty on the goods alleging that the noticee (CPCL) had suppressed material facts with intent to evade duty by invoking extended period of limitation and also proposed to impose penalty under Section 11AC of the Central Excise Act, 1944.

While that notice was pending adjudication, M/s. CPCL approached to the Settlement Commission and the Settlement Commission passed an order dated 23-11-2007 accepting payment of additional duty to the extent of over Rs. 31.5 crores and settling the dispute between M/s. CPCL and the department. The Settlement Commission also granted immunity to the party from imposition of penalty and prosecution under the Central Excise Act, 1944. Thereafter M/s. CPCL paid the differential/additional duty and issued supplementary invoice for the payment of additional duty.

On the strength of these supplementary invoices, the Appellant took credit of additional duty paid by the M/s. CPCL. The department was of the view that the Appellant is not entitled to take credit on the strength of supplementary invoices under Rule 9(1)(b) of the CENVAT Credit Rules, 2004 on account of non-levy or short levy by reason of fraud, collusion or any willful mis-statement or suppression of facts or contravention of law with intent to evade payment of duty. Accordingly, show-cause notice was issued demands were confirmed along with interest and penalty. Against the said order the Appellant is before the Tribunal.

Appellant’s Contention:- The learned Advocate for the Appellant submitted that the Settlement Commission has given immunity from penalty and prosecution to M/s. CPCL, therefore the allegation of suppression is not sustainable against M/s CPCL. He further submitted that similar proceedings were also initiated against the Chennai Unit of the Appellant. Consequent to the order of Settlement Commission, the Commissioner as per order-in-original No. 3/2008, dated 17-3- 2008 has dropped the proceedings on the ground that the input-supplier viz. M/s. CPCL had obtained immunity from penalty under the Central Excise Act, 1944 from the Settlement Commission and the said order has not been appealed against by the department. He further submitted that the CENVAT credit has been denied on the ground that the input-supplier M/s. CPCL has short paid by reason of fraud, collusion, suppression of facts, willful mis-statement of facts or contravention of law with intent to evade payment of duty under Rule 9(1)(b) of CENVAT Credit Rules, 2004 is not sustainable in the light of decision of the Larger Bench in the case of Bosch Chassis Systems India Ltd. v. CCE, Delhi-III - 2008 (232) E.L.T. 622 (Tri.-LB) wherein the Larger Bench has observed that mere filing of application before Settlement Commission for waiver of interest, penalty and immunity from prosecution, the payment of duty does not mean the assessee has admitted the charges of fraud, collusion, suppression of facts etc. Therefore, the supplementary invoice in respect of such additional amount of duty would be acceptable for taking credit. In these circumstances, the learned Advocate submits that the impugned order is to be set aside. He also submits that as in the order-in-original No. 3/2008, dated 17-3-2008, the Commissioner while adjudicating the show-cause notice on identical facts has dropped the show-cause notice, same is applicable to the facts of this case also. He also submits that if the earlier judgment has not been appealed against, subsequently passed judgment cannot be sustained. To support this contention, he relied on Birla Corporation v. CCL - 2005 (186) E.L.T. 266 (S.C.) and CCE v. Nouapan Industries - 2007 (209) E.L.T. 161 (S.C.).

Respondent’s Contention:- Revenue has submitted that the Commissioner of Central Excise, Chennai simply relied on the order of Settlement Commission which itself did not go into the merits of the show-cause notice issued to M/s. CPCL while settling the matter. The Chennai Commissioner also relied on the decision of this Tribunal in the case of Essar Steel Ltd. - 2008 (222) E.L.T. 154 (T) which is distinguishable from the present case as the said case was dealt with the custom matters where there was no sale between the parties but transfer of stock internally, moreover the said order was referred to the Larger Bench of this Tribunal in the case of Bosch Chas-sis Systems (supra) wherein this Tribunal has held that CENVAT credit can be denied in case of suppression, misstatement and contravention of Act/Rules. In the case of M/s. CPCL, on perusal of the show-cause notice it is clear that the charge against the M/s. CPCL very grave and serious, as CPCL and the appellant are related parties wherein M/s. CPCL adopted an arbitrary method of RTP as the basis of valuation which the party could not explain or justify and the same was not in conformity of Rule 9 of Valuation Rules, 2000. Moreover, this was not the first instance that M/s CPCL is adopting wrong method of valuation while supplying goods to the appellant, they had committed similar offence in past also. Therefore, the decision of the Chennai Commissioner in the appellant case cannot be relied upon in the facts of this case.

Reasoning of Judgment:- The Tribunal noted that before the adjudication, M/s. CPCL has approached to the Settlement Commission and without accepting the allegation in the show-cause notice, opted to settle the matter by paying duty and the interest which has been considered by the Settlement Commission while settling the issue wherein M/s. CPCL has been given immunity from penalty and prosecution. Therefore, the allegation of suppression has not attained finality as the same has not been adjudicated. The allegation of suppression has been considered by the Commissioner of Chennai in his order as under: -

"The question whether such additional amount of duty become recoverable from the manufacturer on account of short levy by reason of fraud etc. will not have relevance in view of the Settlement order issued by the Settlement Commission. In case, such credit was denied, it will be apparently against the very basis and spirit of settlement ordered by the Commission. In other words, a person against whom a show-cause notice was issued was granted immunity whereas the buyer of goods who availed credit is sought to be penalized. This, apparently, is untenable."

The Tribunal have seen that in case of Bosch Chassis Systems India Ltd. (supra) which is relied on by both the sides, the Larger Bench of this Tribunal has categorically observed that mere filing of application before Settlement Commission and payment of duty does not amount that the assessee has admitted the charge of fraud, willful mis-statement or suppression of facts etc. with intent to evade payment of duty but the credit can be denied in case of suppression, mis-statement etc. with an intent to evade duty. The West Zonal Bench (CESTAT), Mumbai concluded that as the allegation of the show cause notice against M/s CPCL has not been proved. So the CENVAT credit under Rule 9(1) (b) to the Appellant is not sustainable. Therefore West Zonal Bench (CESTAT) set aside the impugned order and allowed the appeal with consequential relief, if any.

Decision:- Appeal allowed.

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PJ/Case Laws/2011-12/1485

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