Whether the appellant was entitled to take re-credit, which was earlier reversed by the appellant?

PJ/CASE LAW/2015-16/3012

Case:- KRISHNAV ENGINEERING LTD. VersusCESTAT

Citation:- 2016 (331) E.L.T. 391 (All.)

Brief facts:-The petitioner is a manufacturer of Brake Shoe Castings and availed Cenvat credit on the basis of relevant cenvatable invoices under Rule 9 of the Cenvat Credit Rules, 2004 (hereinafter referred to as the Rules of 2004). Departmental audit was carried out by an audit party in which a credit of Rs. 2,92,401/- was disallowed on LDO/furnace oil. Interest of duty amounting to Rs. 43,806/- was also added. The said amount was debited from RG23A. Subsequently, the appellant noticed that under the Rules of 2004 Cenvat credit can be claimed on furnace oil and, accordingly, intimated the Assistant Commissioner, Customs and Central Excise, Ghaziabad vide letter dated 25th April, 2005 that they had wrongly debited the credit of Rs. 2,63,446/- and informed the department that they are taking the relevant credit entry again by reversal of entry under Rule 7 of the Rules of 2004. By the said letter, the appellant not only informed the department about taking credit afresh but also enclosed the original copy of the invoice bills. The list indicating the details of the description of inputs, invoice number and date and details of credit taken on each invoice bill was also filed. No orders were passed and, accordingly, the assessee made a reversal of the entries to the tune of Rs. 3,02,969/- and indicated reversal on their registers, namely, RG23A.
Subsequently, a show cause notice dated 27th October, 2005 was issued alleging that credit of Rs. 2,63,446/- in their Cenvat account had again been taken without any refund order or permission from the proper authority and without proper documents as required under Rule 9 of the Rules of 2004 and such credit being taken without any order under Section 11B of the Central Excise Act, 1944 (hereinafter referred to as the Act) was wholly arbitrary and, therefore, recoverable under Rule 14 of the Rules of 2004 read with Section 11A of the Act. The assessee filed a reply and thereafter, an order dated 18th January, 2006 was passed by the Assistant Commissioner confirming the demand of Rs. 2,63,446/- as well as the amount of Rs. 39,513/- towards interest and directing the recovery of the said amount along with interest and penalty. The assessee filed an appeal, which was dismissed and, thereafter, filed a second appeal before the Tribunal, which was partly allowed. The imposition of penalty was quashed but the demand of Cenvat credit and interest was upheld. The Tribunal held that the appellant could not recredit the amount suo moto in the Cenvat account and that appropriate orders was required to be passed by the proper authority. The Tribunal was also of the view that the appellant could apply for refund under the Act but could not take suo moto recredit of the duty. The appellant, being aggrieved, has filed the present appeal, which was admitted on the following substantial question of law :-
1. ”Whether, the appellant being legally entitled to the claim of Cenvat Credit on furnace oil used as input for the manufacture of “Brake Shoe Castings”, there is no application of Rule 14 relating to recovery of Cenvat Credit wrongly taken or erroneously refunded, read with Rule 15 of the Cenvat Credit Rules, 2004 relating to confiscation and penalty and the Customs, Excise and Service Tax Appellate Tribunal was not legally justified in upholding the applicability of the same?
2. Whether, in view of the fact that the admissibility of Cenvat credit of Rs. 2,63,466/- on account of use of furnace oil as input in manufacture of Brake Shoe Casting having not been disputed by the lower authorities, the Customs, Excise and Service Tax Appellate Tribunal was legally justified in upholding the order of the lower authority demanding an amount of Rs. 2,63,466/- and interest thereon?”
After hearing the learned counsel for the parties, they find that the question of law is required to be modified as under :-
“Whether the appellant was entitled to take recredit to the tune of Rs. 3,02,963/-, which was earlier reversed by the appellant?”
Reasoning of judgment:-
Having heard the learned counsel for the parties, they find that the department has proceeded on the ground that the appellant had taken the Cenvat credit without any refund order or without permission from the proper authority and without filing proper documents under Rule 9 of the Rules of 2004. Rule 9 of the Rules of 2004 prescribes that Cenvat credit could be taken by the manufacturer on the basis of certain documents to be filed, namely, an invoice issued by the manufacturer for clearance of inputs or capital goods, etc. Admittedly, they find that the appellant had claimed Cenvat credit and had filed the proper invoice bills. The authority was satisfied and credit was allowed for which there is no dispute. However, for whatever reasons, the appellant reversed these Cenvat credit entries and debited the said amount in its books but subsequently, realised that they were eligible for Cenvat credit, inasmuch as furnace oil was an input as defined under the Rules, based on which, the assessee issued a letter dated 25th April, 2005 indicating its intention to again make the reversal of its Cenvat credit entries and also enclosing the original invoice bills.
In this view of the fact, they find that the show cause notice was wrongly issued on a wrong premise that no permission was taken or that original documents were not filed. In fact, they find that the appellant had not only intimated the department about its intention but also had filed the necessary documents. The letter indicated the details of the description of the goods, the invoice bills and the credit to be taken. This was in consonance with the provisions of Rule 9. If the authority had any objection they should have immediately asked the appellant for further clarifications, which in the instant case was not done.

The contention of the respondent that an application for refund of duty was required to be made under Section 11B of the Act does not hold water. It is not a case of refund of duty but a case of reversal of an entry in the books relating to Cenvat credit. They find support on this aspect of a judgment of the Madras High Court in ICMC Corporation Ltd. v. CESTAT, Chennai, 2014 (302)E.L.T.45, where in similar circumstances the High Court held that the provisions of Section 11B of the Act was not applicable. They find that the appellant originally availed the Cenvat credit, which was allowed but for various reasons it reversed the credit. In their view, it is only an account entry reversal and there is no out flow of funds from the side of the appellant which may result in filing an application under Section 11B of the Act for claiming refund of duty. Consequently, in their opinion, the provision of Section 11B of the Act is not applicable.

Considering the fact that it is only an account entry reversal, they have no hesitation in holding that the Cenvat credit taken by the appellant by intimating the department vide their letter dated 25th April, 2005 was in accordance with the procedure provided under Rule 9 of the Rules of 2004.
Consequently, the reversal of entry made by the appellant was justified in the given facts and circumstances of the case. The show cause notice issued by the department and the adjudication made thereafter imposing a demand and interest were wholly illegal, which cannot be sustained and are set aside. The show cause notice is also quashed. The questions of law is answered accordingly.
Pursuant to the order of this Court certain amounts have been deposited. Since they have quashed the demand notice, the appellant would be entitled for refund, which would be refunded by the department within three months from the date of production of a certified copy of this order.

Decision:- Appeal allowed.

Comment:- The analogy of the case is thatthe petitioner availed the Cenvat credit on the basis of relevant cenvatable invoices. Thereafter the said amount was debited from RG23A. Subsequently, the appellant noticed that under the Rules of 2004 Cenvat credit was rightly availed, accordingly, intimated the Assistant Commissioner that they had wrongly debited the credit of Rs. 2,63,446/- and informed the department that they are taking the relevant credit entry again by reversal of entry under Rule 7 of the Rules of 2004. The question of law is raised before high court:
“Whether the appellant was entitled to take recredit to the tune of Rs. 3,02,963/-, which was earlier reversed by the appellant?”
The High court held that incorrect reversal thereof in respect of HSD, is not precluding them for taking re-credit of same after duly informing Department and submitting copies of invoices. This is not being a case of refund of duty but only reversal of book entry. There is no outflow of funds from appellant. Revenue directed to refund, within three months from the date of production of a certified copy of this order, amounts of pre-deposits made by appellant.

Prepared by:- Monika Tak

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PJ/CASE LAW/2015-16/3012

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