Whether extended period of limitation invocable for denying credit onMS Flats, MS Angles?

Case: -ULTRA TECH CEMENT LTD. VERSUSCOMMISSIONER OF CENTRAL EXCISE, RAIPUR

Citation: - 2016 (332) E.L.T. 356 (Tri. - Del.)

Brief facts:- The appellants are engaged in the manufacture of Cement and Cement Clinker liable to Central Excise Duty. They were availing Cenvat credit on inputs, capital goods and on input services in terms of Cenvat Credit Rules, 2004. After certain inquiry in 2009, the Revenue entertained certain doubts regarding the eligibility of the appellant for Cenvat credit availed by them in respect of TMT bars, MS Flats, MS Angles, MS channel, MS beam, sheets, MS Round, MS Steel, MS Pipes, etc., during the period from July, 2007 to June, 2009. After enquiry and verification, a show cause notice dated 27-7-2012 was issued to the appellant to disallow and recover Cenvat credit of Rs. 1,40,29,695/-. After a due process, the case was adjudicated resulting in the impugned order dated 27-3-2014. The ld. Commissioner confirmed the demand made in the show cause notice and imposed an equal penalty on the appellant.Aggrieved by the said order, the appellant filed an appeal before this Tribunal. The said appeal was decided vide Final Order No. 54600 of 2014, dated 27-11-2014. The Tribunal held that the demand in the present case is time-barred and set aside the impugned order on that limited issue without going into the merits of the case.

The Revenue filed an appeal with the Hon’ble High Court of Chhattisgarh-Bilaspur against the final order of the Tribunal. The Hon’ble High Court vide their order dated 25-8-2015 set aside the order dated 27-11-2014 of the Tribunal and remanded the matter to hear the parties afresh and to pass a reasoned and speaking order.

Appellant’s Contention: -The ld. Counsel for the appellant, Shri Amit Jain, submitted that during the period March, 2006 to June, 2009, the appellant procured various iron and steel items like MS Plate, MS Angle, MS Rail, Joists, Coils, MS Beam, Rounds and MS Flats. These iron and steel items have been used in the fabrication of machineries within the factory such as conveyor system, wagon loading system, coal washery, hoppers, etc. and parts thereof. The credit on these iron and steel items has been availed as they are eligible for the same. The fabricated items within the factory are capital goods or parts thereof which are essential for the manufacture of cement. The ld. Counsel strongly contested the findings of the original authority on the validity of demand for extended period. His submissions can be summarized as below :

(a)   The appellants are regularly filing ER-1 Returns clearly indicating various types of credits availed by them. They were also subjected to periodical Central Excise Audit. The enquiry in the present case started with letter dated 20-10-2009 by the Superintendent of Central Excise, Bhatapara calling for certain details. The details as called for have been submitted by the appellants on 11-3-2010. There is no suppression whatsoever and the departmental authorities had full information with regard to the present case. There is no requirement for giving details of receipt of iron and steel items in the ER-1 Returns.

(b) In respect of appellants’, another unit at Tadpatri, Andhra Pradesh, a show cause notice issued on similar matter for the period April, 2005 to August, 2005 to deny Cenvat credit on similar iron and steel items, was dropped by the Joint Commissioner and the credit was allowed. The said order has become final as no further appeal has been filed. Hence, the appellants had bona fide belief regarding credit of such iron and steel items available to them.

(c)   The demand in the present case is based on scrutiny of statutory monthly ER-1 Returns filed in terms of Rule 12 of Central Excise Rules, 2002 as mentioned in the para 2 of the show cause notice. The case was initiated against them only based on scrutiny of monthly ER-1 Returns. If such a scrutiny was conducted well beyond the normal period, the department cannot resort to demand for extended period for the reason of delay in taking up the scrutiny.

(d) When the appellant fulfilled the statutory obligation for maintaining records and filing statutory returns with full particulars, it is clear that they have supplied all information as required by law. For non-supply of additional information voluntarily, suppression clause cannot be invoked. Ld. counsel placed the reliance on the following cases :

(i) Apex Electricals v. Union of India - 1992 (61) E.L.T. 413 (Guj.)
(ii) Unique Resin Industries v. CCE - 1995 (75) E.L.T. 861 (T)
iii) Gufic Pharma v. CCE - 1996 (85) E.L.T. 67 (T) Affirmed by Supreme Court at 1997 (93) E.L.T. A186

(e)        It is well settled legal position when the matter was in dispute involving interpretation and different decision by the Original and Appellate fora, longer period of demand cannot be invoked. It is clear that reference to Larger Bench in the case of Vandana Global Limitedwas only on account of conflicting decisions. Hence, when the issue itself is amenable to various interpretation, the appellant cannot be alleged to have suppressed or committed fraud with an intend to evade the payment of duty. The ld. counsel relied on the following case law in this regard :

(i) CCE v. N.R. Aggarwal Industries - 2014 (300) E.L.T. 213 (Guj.)
(ii) ITC Ltd. v. CCE - 2012 (285) E.L.T. 292 (T)
(iii) CCE v. Orion Ferro Alloys - 2010 (259) E.L.T. 84 (T)
(iv) Reliance Industries v. CCE - 2013-TIOL-1057-CESTAT-MUM

The ld. Counsel submitted a compilation of case laws to further support his claim of time bar against the present demand. He also submitted that in view of the various decisions of the Tribunal and High Courts after the Larger Bench decision in Vandana Global Limited, they have a strong case on merits also.

Respondent’s Contention: -The ld. AR, Shri Govind Dixit, reiterated the findings by the original authority specifically on the question of time bar. He further submitted that the appellants never disclosed that they were engaged in the fabrication of capital goods in their factory. Their ER-1 monthly statements mentioned only cement and cement clinkers as the goods manufactured by them. As the appellant has not indicated the fact of fabrication of capital goods which are in turn used in the manufacture of cement, the same could be ascertained only after detailed verification by the Department. It is only after the department insisted to have specific usage of iron and steel items to be supported by a Chartered Engineering Certificate, the appellants submitted the same belatedly. Hence, the ld. AR supported the findings of the original authority regarding the applicability of the extended period of limitation in the present case.

Reasoning Of Judgement:-We have heard both the sides and perused the appeal records.
The Tribunal in the Final Order dated 27-11-2014 held that the demand in the present case was raised and confirmed on the ground that the legal principle to be followed in terms of Larger Bench decision in the case of Vandana Global Limited - 2010 (253) E.L.T. 440 (Tri.-LB) will make the appellant ineligible for the disputed Cenvat credit amount. The appeal of the appellant was allowed on the point of limitation in view of the various decisions of the Tribunal in similar facts of the case. The matter is examined afresh in the light of the directions of the Hon’ble High Court of Chhattisgarh as stated above. On perusal of the impugned order-in-original and the show cause notice, we find that the whole proceedings against the appellant started with scrutiny of ER-1 Returns filed by the appellant for the period July, 2007 to June, 2009. As per records, the enquiry regarding Cenvat credit on iron and steel items was initiated by issue of letter dated 20-10-2009 by the Superintendent of Central Excise, Bhatapara. It is not clear as to why the scrutiny of returns filed from July, 2007 was not conducted for more than two years. The show cause notice states during the scrutiny of monthly ER-1 Returns it was revealed that they had taken Cenvat credit of Central Excise Duty paid on structural items of iron and steel. The notice was issued on 27-7-2012 and well beyond the normal period of demand. The original authority justified the applicability of extended period. His findings are at Para 39 of the impugned order. He observed that the appellant did not declare the manufacture of any capital goods using steel items in the ER-1 Returns. Further, he observed that the appellants failed to produce quantity-wise details of input used in manufacture of such capital goods duly certified by Chartered Engineer to establish the said items were used in the manufacture of capital goods which were, in turn, used in the manufacture of process of excisable goods. The ld. Original Authority relied on certain case laws (Para 39.1 of the impugned order). We find on perusal, the case laws deal with a set of facts which have no relevance to decide the present case. The Larger Bench decision of the Tribunal in Nizam Sugar Factory v. Collector of Central Excise, Hyderabad reported in 1999 (114) E.L.T. 429 (Tri.-LB) deals with relevant date with reference to the department acquiring the knowledge about the activity. The other case laws referred by the original authority deal with clearance of goods without intimation. We find analysis and reasoning given by the original authority to confirm the demand with extended period fall well short of legal sustainability.
It is not disputed that the eligibility of Cenvat credit on iron and steel items like MS Angles, Channels, etc. used inside the factory for fabrication of various machineries, accessory and parts of such machineries are subject matter of dispute and interpretation in various levels. Before the decision by the Larger Bench in Vandana Global Limited, the eligibility was treated differently, largely in favour of the assessees. The Larger Bench decision examined the availability of the credit on these items when the resultant product gets permanently embedded to the earth. The Larger Bench concluded that the capital goods under the Cenvat Credit Rules for the purpose of credit have to be excisable goods. Items used for supporting structures cannot be treated as inputs for capital goods. It was held that the Division Bench decision in the case of Bhushan Steel and Strips Limited, 2008 (223) E.L.T. 517 (Tribunal), is not correct view of the law. We find in the present impugned order, the original authority denied the Cenvat credit on iron and steel items on substantial reliance on this Larger Bench Decision of the Tribunal in Vandana Global (Supra). Apparently, the Larger Bench view was arrived at after interpretation and analysis of the decision of the Division Bench. This proposition of legal principle was not available prior to that. Rather various decisions which were discussed in the Larger Bench order held different interpretation on the subject. In this factual background it will not be tenable to hold that the appellant deliberately suppressed any material fact which helped them to evade duty or to avail an ineligible credit. In fact, the impugned order holds that the fabricated items by the appellant cannot be called as capital goods and as such no credit can be allowed on iron and steel items in terms of Cenvat Credit Rules, 2004. On the other hand, the original authority observes that the appellants have not mentioned manufacture of such capital goods in their factory. Hence, they suppressed the fact. We find the element of contradiction in such observation.
They tend to agree the appellants’ plea that they have entertained a bona fide belief regarding the eligibility of MS Angles, etc. for Cenvat credit during the impugned period. This is supported by the adjudicating authorities finding in one of the appellants’ other unit in Andhra Pradesh. The credit on similar iron and steel items were allowed by the department in that unit. We were informed that no appeal has been filed against the said order. The Hon’ble Gujarat High Court in the case of Commissioner of C. Ex., Cus. & S.T., Daman v. N.R. Aggarwal Industries reported in 2014 (300) E.L.T. 213 (Guj.) upheld the Tribunal’s order regarding the non-availability of extended period for demand in similar situation. The Hon’ble High Court reproduced the observation of the Tribunal to the fact that prior to the Larger Bench decision in the case of Vandana Global Limited there were certain decision in favour of the assessee, the bona fide belief on the part of the appellant regarding the availability of credit has to be upheld.
The Supreme Court in the case of Continental Foundation Jt. v. Commr. of C.Ex., Chandigarh-Ireported in 2007 (216) E.L.T. 177 (S.C.) held that the expression “suppression” has been used in the proviso to Section 11A of the Act accompanied by very strong word as “fraud” or “Collusion” and therefore, has to be construed strictly. Mere omission to give correct information is not a suppression of facts unless it was deliberate to stop the payment of duty. The incorrect statement cannot be equated with wilful misstatement. Similarly, the Hon’ble Supreme Court in the case of Commissioner of C. Ex., Bangalore v. Karnataka Agro Chemicals - 2008 (227) E.L.T. 12 (S.C.) held that it is well settled that mere non-declaration is not sufficient to invoke the larger period. Some positive act of suppression is required for invoking larger period of limitation under Section 11A. The Hon’ble Supreme Court in the case of Jai Prakash Industries Limited v. Commissioner of C.Ex., Chandigarh - 2002 (146) E.L.T. 481 (S.C.) held that in the case of divergent views of the various High Courts there was a bona fide doubt as to whether or not such activity amounted to manufacture. In such situation, the extended period cannot be invoked. In Uniworth Textiles Ltd. v. Commissioner of Central Excise, Raipur- 2013 (288) E.L.T. 161 (S.C.), the Hon’ble Supreme Court held the burden of proving any form of mala fide lies on the person who is alleging it. Such allegations demand prove of order of credibility. Considering the above position of law, we find that in the present case, the demand for extended period cannot be sustained. The ER-1 Returns for the period starting from June, 2007 were available with the department and no reason is forthcoming for non-scrutiny or delayed enquiry for more than two years. The Tribunal in the case of Accurate Chemicals Industries v. Commr. of C. Ex., Noida - 2014 (300) E.L.T. 451 (Tribunal-Delhi) examined the scope of scrutiny of ER-1 Returns by the departmental officers. The Tribunal held, after examining the instructions issued by the Board from time to time, that returns filed by the assessee are required to be subject to detailed scrutiny in course of which the concerned officer can call for documents from the assessee wherever necessary for the scrutiny. In the present case, we find that the starting of the enquiry was stated to be scrutiny of ER-1 Returns. This was done apparently after two years. Invoking extended period for demand is not tenable in such a situation.
Considering the above discussion, we find that there is no ground for invoking extended period for demand in the present case and as such the demand is barred by limitation. The impugned order is set aside on the issue of time-barred and the appeal is allowed on this ground.

Decision:-Appeal Allowed.

Comment:- The essence of this case is that the issue regarding availment of cenvat credit on MS angles, channels, TMT bars etc. was put to rest only after decision of Larger Bench of Tribunal in the case of Vandana Global Ltd. Prior to the larger bench decision, there were contrary decisions on the issue which created confusion as regards cenvat credit availment on MS angles, channels etc. Consequently, extended period of limitation could not be invoked and the demand was barred by the clause of limitation.

Prepared By: - Alakh Bhandari

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PJ/CASE LAW/2016-17/3115

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