Whether 100% credit can be availed on capital goods in the same financial year as SSI if PY value of clearences was nill or zero?

PJ/Case Study/2016-17/

CASE STUDY

Prepared by: RAKSHAY TATER

Introduction: : M/s MarudharPolypack Pvt. Ltd.,F-662& G68l -682 boranada Ind.Area, Jodhpur-(hereinafter referred to as the assessee also) holder of Central Excise Registration No. AAICM1035CEM001 for manufacture of PP unlamented fabrics (39269080).PP Bags/sacs (39231090) falling under Chapter 39269080 and 39231090 of the First Schedule to the Central Excise Tariff Act, 1985, have wrongly availed 50% Cenvat credit of Rs.30,92,590/- on capitalgoods, since the assessee has availed 100 % cenvat credit on capital goods in the same financial year during the period from June 2013 to March, 2014.

MARUDHARA POLYPACK PVT. LTD. V/S ASSISTANT COMMISSIONER, CENTRAL EXCISE DIVISION , JODHPUR
[ORDER IN ORIGINAL – 68/2016- DATED 07.02.2017]

Relevant Legal Provisions:

NOTIFICATION NO.36/2001-CE (NT) DATED 26/06/2001
  hereby exempts from the operation of rule 9 of the said rules, -
           (i) the persons who manufacture the goods specified in the First Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) which are chargeable to nil rate of duty or remain fully exempt from the whole of the duty of excise leviable thereon subject to conditions specified in that notification and other conditions as  specified below:
      (a) the manufacturer makes a declaration in the specified form annexed hereto while claiming exemption under this notification:
      (b) that where the exemption from the whole of the duty of excise leviable on the said goods is granted, based on the value of clearances made in a financial year (hereinafter referred to as "full exemption limit"), no such declaration shall be filed, if the aggregate value of the said goods cleared -
(i)             by a manufacturer from one or more factories, or
(ii)           from any factory by one or more manufacturers,
for home consumption, was less than the specified limit during the preceding financial year or in case of a new factory or manufacturer, such value of clearances is estimated to remain less than the specified limit during the current financial year;
Rule 4(2)(a):-The Cenvat Credit in respect of capital goods received in a factory or in the premises of the provider of output service or outside the factory of the manufacturer of the final products for generation of electricity for captive use within the factory or in the premises of the job worker, in case capital goods are sent directly to the job worker on the direction of the manufacturer or the provider of output service, as the case may be at any point of time in a given financial year shall be taken only for an amount not exceeding fifty per cent of the duty paid on such capital goods in the same financial year.

Provided that the cenvat credit in respect of capital goods shall be allowed for the whole amount of the duty paid on such capital goods in the same financial year if such capital goods are cleared as such in the same financial year.

Provided further that the cenvat credit of the additional duty leviable under sub-section (5) of section 3 of the Customs Tariff Act, in respect of capital goods shall be allowed immediately on receipt of the capital goods in the factory of a manufacturer.

Provided also that where an assessee is eligible to avail of the exemption under a notification based on the value of clearances in a financial year, the cenvat credit in respect of capital goods received by such assessee shall be allowed for the whole amount of the duty paid on such capital goods in the same financial year.

Issue Involved:

The following issue was involved in this case before the adjudicating authority:-
1.    Whether 100% credit can be availed on capital goods in the same financial year as SSI if PY value of clearences was nill or zero?
2.    Whether the time barred demand of interest is acceptable?
3.    Whether the penalty can be imposed on issues of interpretational nature?

Brief Facts: M/s MarudharPolypack Pvt. Ltd.,F-662& G68l -682 boranada Ind.Area, Jodhpur-(hereinafter referred to as the assessee also) holder of Central Excise Registration No. AAICM1035CEM001 for manufacture of PP unlamented fabrics (39269080).PP Bags/sacs (39231090) falling under Chapter 39269080 and 39231090 of the First Schedule to the Central Excise Tariff Act, 1985, have wrongly availed 50% Cenvat credit of Rs.30,92,590/- on capitalgoods, since the assessee has availed 100 % cenvat credit on capital goods in the same financial year during the period from June 2013 to March, 2014 and thereby contravened the provision of Rule 4(2)(a) of Cenvat Credit Rules, 2004 hereinafter referred to as the CCR, 2004 also as per the facts stated below:
During course of audit, it was observed that the assessee has set up a new factory for manufacturing PP unlamented fabrics. PP Bags/sacs and for that the assessee has procured the capital goods during the said period and took 100% credit of cenvat paid on the capital goods during the same financial year i.e. 2013-14 i.e. Rs.61,85,180/-, whereas as per the provisions of rule 4 (2) (a) of the CCR, 2004, the assessee was eligible to take only 50% credit of cenvat paid on capital goods i.e. Rs.30,92,590. Thus the assessee has wrongly availed 50% Cenvat credit on Capital Goods in the same financial year 2013-14.
The assesse was requested vide letter NolAR1696/Gr.L-2/JDR/2015-16/ dated 27.10.2015 (RUD 1) issued by the Superintendent, Gr L-2, Circle Jodhpur and IAR No. 696/1516 dated 23.11.2015 (RUD-2) issued by the Assistant Commissioner (Audit)._ Central Excise Audit Commissionerate, Jaipur to deposit the interest of Rs 389820/-on the excess Credit availed on capital goods which were became eligible in next financial year. The assessee vides its letter dated Nil has submitted that they have availed credit as SSI because their turnover during the year 2012-13 is less than 400 crore.
The assessee's contention that they were eligible 100% credit on capital goods during the year 2013-14 because their turnover was less than rupees 400 crores, is not correct. As per Provisions of Notification No.8/2003-CE dated 01.03.2003 wherein vide paragraph no. 2(vii), it has been provided that exemption shall not apply in the case where the aggregate value of clearances of all excisable goods for home consumption by a manufacturer from one or more factories , or from a factory by one or more manufactures, does not exceed (rupees four hundred lakhs) in the proceeding financial year. On going through the audited Balance Sheet for 2013-14, it is noticed that their aggregate value of clearances was rupees 132369917/- during the year 2013-14 and that during the year 2012-13 the clearances have been shownas 0/Nil which means they were not the manufacturer of the excisable goods during year 2012-13 and therefore they were not eligible for SSI exemption under the said notificationsfor the financial year 2012-13. During the Financial year 2013-14, they have not availed SSI exemption under the said Notifications as evident from the facts that they have availed cenvat credit both on inputs and capital goods used in the manufacture of the final product cleared right from the first clearances (refer condition No.2 (iii) of the said notification). During the year 2013-14, as per the Balance Sheet they were manufacturer of the excisable goods and therefore they were entitle to take on 50% cenvat credit on capital goods in terms of provision of rule 4(2)(a) of Cenvat Credit Rules. 2004 and they were eligible to take
Rest of credit on the capital goods in the subsequent financial year in terms of provision rule 4(2)(b) of cenvat credit rules 2004.
Further the assessee has not followed the prescribed procedure under notification no.36/2001-CE (NT) dated 26.06.2001 for availing the value based exemption and started paying duty from beginning and also taking Cenvat credit on inputs services from beginning. As per Notification no.36/2001-CE (NT) dated 26/06/2001, “hereby exempts from the operation of rule 9 of the Central Excise rules,2002:-
           (i) the persons who manufacture the goods specified in the First Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) which are chargeable to nil rate of duty or remain fully exempt from the whole of the duty of excise leviable thereon subject to conditions specified in that notification and other conditions as  specified below:
      (a) the manufacturer makes a declaration in the specified form annexed hereto while claiming exemption under this notification:
      (b) that where the exemption from the whole of the duty of excise leviable on the said goods is granted, based on the value of clearances made in a financial year (hereinafter referred to as "full exemption limit"), no such declaration shall be filed, if the aggregate value of the said goods cleared -
(i)             by a manufacturer from one or more factories, or
(ii)           from any factory by one or more manufacturers,
for home consumption, was less than the specified limit during the preceding financial year or in case of a new factory or manufacturer, such value of clearances is estimated to remain less than the specified limit during the current financial year;

On going through the audited records, it is observed that there was no declaration madeof SSI exemption under Notification No. 8/2003-CE dated 01.03.2003 as amended, which was required to be filled after crossing, aggregate value of clearances Rs. 90 Lakhs during financial year 2013-14, the aggregate value of clearances was Rs. -132369917 before the Deputy/Assistant Commissioner of the Division , Jodhpur, though the same was not admissible as the assessee has availed cenvat credit of duty paid on inputs. In view of the fact of availment_, of Cenvat credit of duty paid on the inputs, it appears that the assesseewas not eligible for SSI exemption under Notification No. 8/2003-CE dated 01.03.2003 and further, the contention of the assessee that they were eligible for 100% credit of cenvat paid on the capital goods during 2013-14 on the ground that they were eligible for SSI exemption under Notification No. 8/2003-CE dated 01.03.2003 in terms of 3^rd proviso to rule 4 (2)(a) of CCR, 2004, is also appears to be incorrect.
Further, the assesse was requested vide letter No.IAR/696/Gr.L-2/JDR/2015-16/255 dated 09.03.2016 (RUD 3) issued by the Assistant Commissioner (Audit) Central Excise Audit Commissionerate, Jaipur and subsequent reminder letters of even no.336 dated 5.04.2016 and 590 dated 28.04.2016 (RUD 4) issued by the Assistant Commissioner (Audit) Central Excise Audit Commissionerate, Jaipur to deposit the interest of Rs 3,89,820/- as per Annexure-A (RUD 5) so as to avoid issuance of Show Cause Notice for recovery of wrongly availed Cenvat Credit amounting to Rs.30,92,590/- and for recovery of Interest thereon Rs.3,89,820/- and for imposition of penalty under Rule 15(2) of Cenvat Credit Rules, 2004 read with Section 11 AC of Central Excise Act, 1944, but the assessee has neither deposited the interest nor submitted reply till date.
The assessee has not disclosed these facts to the department and appears to have suppressed the same with an intention to evade payment of duty by way of wrongly availed cenvat credit on capital goods. If the auditors not detected the said amount wrong credit taken on capital goods by the assessee during the period from June 2013 to March, 2014, the same would have remained undetected. Therefore, extended period of limitation appears to be invocable against the assessee.
Therefore, the assessee has contravened the provisions of Rule 4, of the Cenvat Credit Rules, 2004 in as much as they have wrongly availed 50% Cenvat credit of Rs.61,85,180/- on Capital Goods in the same financial year instead of eligible 50% credit of Rs.30,92,590/- during the period from June 2013 to March, 2014 with intent to evade payment of duty. It appears that the assessee is liable to pay interest amounting to Rs.389820/- on the amount of cenvat credit wrongly taken Rs.30,92,590/- under rule 14 of CCR, 2004 read with Section 11 AA of the Central Excise Act, 1944.
The assessee is also liable to pay penalty under rule 15 (2) of^.CCR. 2004 read with clause(c) of sub section 1 of Section 11AC of the Central Excise Act, 1944 as they have suppressed the fact of taking 100% cenvat credit on capital goods and inputs without fulfilling the
declaration of being eligible under the Notification 8/2003-CE dated 1.3.2003: without filling SSIdeclaration and without disclosing the facts of availment of cenvat credit of duty paid of inputs as discuss above, to the department which was detected during the course of the audit only.

Therefore, M/s Marudhara Polypack Pvt. Ltd., was called upon to show cause and explain to the Deputy/Assistant Commissioner, Central Excise Division, Jodhpur within 30 days of the receipt of this notice as to why:-
(i)The Interest of Rs 3,89,820/- should not be demanded and recovered from them under rule 14 of Cenvat Credit Rules, 2004 read with 11 AA of Central Excise Act, 1944 .
(ii)Penalty should not be imposed upon them under rule 15 (2) of Cenvat Credit. Rules, 2004 read with read with clause (c) of sub section 1 of Section 11 AC of the Central Excise Act,1944.

Assessee’s Contention: -We are in receipt of aforementioned Show Cause Notice wherein it is alleged that we have wrongly availed 100% cenvat credit on capital goods in the same financial year during the period from June, 2013 to March, 2014 and thereby contravened the provision of Rule 4(2)(a) of the Cenvat Credit Rules, 2004. Consequently, it was alleged that we are liable to pay interest amounting to Rs. 3,89,820/-.

We were asked to show cause as to why:-

(i)            The interest of Rs. 3,89,820/- should not be demanded and recovered from us under Rule 14 of the Cenvat Credit Rules, 2004 read with section 11AA of the Central Excise Act, 1944;

(ii)           Penalty should not be imposed upon us under Rule 15(2) of the Cenvat Credit Rules, 2004 read with clause (c) of sub-section (1) of section 11AC of the Central Excise Act, 1944;

We submit our reply on the following grounds which are without prejudice to each other and are independent of the grounds to be taken at the time of personal hearing:-

We submit that we are engaged in manufacture of PP unlamented fabrics (39269080), PP Bags/sacs (39231090) and are holder of Central Excise Registration no. AAICM1035CEM001. We submit that the impugned show cause notice issued to us is wholly and totally erroneous and is liable to be set aside.

1)            It is alleged that as per provisions of Rule 4 (2)(a) of the Cenvat Credit Rules, 2004, we were eligible to take only 50% of the cenvat paid on capital goods but we have wrongly availed 100% cenvat credit in the same financial year, i.e., 2013-14. Consequently, it is alleged that we are liable to pay interest for availing pre-mature credit to the extent of 50%. In this regard, we submit that we have correctly availed 100% cenvat credit of capital goods in the same financial year as during the financial year 2013-14, we were eligible for availing benefit of small scale exemption. In this regard, the provisions of Rule 4 of the Cenvat Credit Rules, 2004 prescribing conditions for allowing cenvat credit are pertinent to note.

Rule 4(2)(a):-The Cenvat Credit in respect of capital goods received in a factory or in the premises of the provider of output service or outside the factory of the manufacturer of the final products for generation of electricity for captive use within the factory or in the premises of the job worker, in case capital goods are sent directly to the job worker on the direction of the manufacturer or the provider of output service, as the case may be at any point of time in a given financial year shall be taken only for an amount not exceeding fifty per cent of the duty paid on such capital goods in the same financial year.

Provided that the cenvat credit in respect of capital goods shall be allowed for the whole amount of the duty paid on such capital goods in the same financial year if such capital goods are cleared as such in the same financial year.

Provided further that the cenvat credit of the additional duty leviable under sub-section (5) of section 3 of the Customs Tariff Act, in respect of capital goods shall be allowed immediately on receipt of the capital goods in the factory of a manufacturer.

Provided also that where an assessee is eligible to avail of the exemption under a notification based on the value of clearances in a financial year, the cenvat credit in respect of capital goods received by such assessee shall be allowed for the whole amount of the duty paid on such capital goods in the same financial year.

We submit that the above cited provision clearly states that if an assessee is eligible to avail exemption under a notification based on value of clearances such as small scale exemption, the assessee is eligible to avail entire credit of capital goods in the same financial year. In the present case, the capital goods were procured in 2013-14, during which we were eligible to avail the benefit of small scale exemption. This is for the reason that the aggregate value of clearances in the financial year 2012-13 was nil, i.e., below the threshold limit of 400 lakhs and so we were entitled to claim benefit of small scale exemption in the financial year 2013-14. Consequently, we availed the entire cenvat credit of capital goods in the year of purchase as we satisfied the provision contained in the third proviso to Rule 4(2)(a). We submit that actual availment of exemption is not necessary and the provision merely states that the assessee should be eligible to avail the exemption under notification based on value of clearances in a financial year. As there is no doubt as regards our eligibility to avail the benefit of small scale exemption, the availment of 100% credit is legal and proper and the impugned show cause notice demanding interest is not at all tenable.

2)            It is also alleged that since clearances for the financial year 2012-13 were shown as zero, it means that no excisable goods were manufactured in the year 2012-13 and so we are not eligible for SSI exemption under the notification no. 8/2003-CE dated 01.03.2003. In this regard, we submit that the allegation is totally absurd and baseless as if the contention is accepted, it would mean that no manufacturer will be able to claim small scale exemption in the first year of manufacture. The benefit of small scale exemption will be available even if there were no clearances in the preceding financial year as zero clearance is also within the threshold limit of 400 Lakhs. As such, the contention that we were not eligible for claiming benefit of small scale industries exemption in financial year 2013-14 as there was no clearance in the financial year 2012-13 is totally weird and illogical.

Furthermore, the impugned show cause notice has also contended that during the financial year 2013-14, we have availed cenvat credit on inputs and capital goods used in the manufacture of final product cleared right from the first clearances thereby meaning that we were not availing the benefit of small scale exemption and so were liable to avail 50% cenvat credit in 2013-14 is also not acceptable. This is for the reason that for availing 100% cenvat credit on capital goods, the only condition is that assessee should be eligible to avail the benefit of exemption notification based on value of clearances in a financial year and actual availment of exemption benefit is not mandatory. This is also clear from the language of the third proviso reproduced hereinabove. Consequently, we were eligible to avail 100% cenvat credit on capital goods as far as we were eligible to claim benefit of exemption under notification based on value of clearances. Hence, the contention of wrong availment of 100% cenvat credit of capital goods is not at all sustainable and is liable to be quashed.

3)            Aligning with the above, we also wish to place reliance on the clarification issued by the Ministry of Finance (Department of Revenue) vide D.O.F. No. 334/1/2010-TRU dated 26.02.2010 when the third proviso was inserted in Rule 4(2)(a) of the Cenvat Credit Rules, 2004 regarding 100% credit admissibility to assessee eligible to claim benefit of exemption under notification based on value of clearances. The clarification regarding the insertion of this third proviso was given in para 10 which is produced for the sake of convenient reference as follows:-

10. Procedural simplification measures:-
10.1 Small Scale Sector:
10.1.1. There are two significant procedural relaxations/concessions that have been made for the SSI sector. These are:
(i) Full Cenvat credit on capital goods in one instalment in the year of receipt of such capital goods in the factory.
(ii) Payment of duty on quarterly rather than monthly basis.

For this purpose, amendments have been made in the Cenvat Credit Rules, 2004 and Central Excise Rules, 2002. These amendments come into effect on the 1^st of April, 2010. The important point about these relaxations is that they are available to any assessee who is ‘eligible’ to claim SSI exemption regardless of whether he actually claims it or opts to pay duty. An ‘eligible’ unit has been defined as one whose aggregate value of clearances did not exceed Rs. 4 Crores in the preceding financial year. Moreover, the benefit is available to a unit that is eligible for the entire financial year even if it crosses the limit of Rs. 4 Crore (aggregate value of clearances) during the year.

From the above clarification, there leaves no room for any doubt that we are entitled to claim 100% cenvat credit on capital goods in the financial year 2013-14. As such, the impugned show cause notice demanding interest for alleged excess 50% of the cenvat credit taken in the first year is totally erroneous and deserves to be set aside. A copy of the clarification is also enclosed herewith in Annexure-1 for your ready reference.

4)            The impugned show cause notice also contends that we have not followed the prescribed procedure under notification no. 36/2001-CE (N.T.) dated 26.06.2001 for availing the value based exemption and have started paying duty from beginning and also taken cenvat credit on inputs and input services from beginning. As such, it is alleged that we were not entitled for 100% availment of cenvat credit on capital goods in the financial year 2013-14. In this regard, we reiterate that the third proviso to Rule 4(2)(a) merely states that 100% cenvat credit on capital goods will be available to assessee eligible for claiming exemption under notification based on value of clearances. It does not mandates actual availment of exemption notification and complying of the conditions of exemption notification. Moreover, we are also not denying the fact that we have paid duty and availed cenvat credit right from the first clearances made by us in the financial year 2013-14. Our submission is focused on the point that we have correctly taken 100% cenvat credit on capital goods for the financial year 2013-14 since we were eligible to claim the benefit of SSI exemption based on the value of clearances. We submit that it is nowhere prescribed that we were required to comply with the conditions of exemption notification in order to claim 100% cenvat credit of capital goods. The entire cenvat credit of capital goods is admissible to us as far as we were eligible to opt for SSI exemption. The question of complying with the condition of filing declaration on crossing specified clearances was a matter to be discussed if the benefit of small scale exemption was availed by us. However, for taking 100% cenvat credit of capital goods, the only requirement was to establish that we were eligible to claim SSI exemption. The actual availment of exemption and satisfaction of conditions for availing SSI exemption are irrelevant. Therefore, the contention that we have not followed prescribed procedure is baseless as we are entitled to take 100% cenvat credit of capital goods as far as we were eligible to claim SSI exemption. This view is also supported by clarification issued by Ministry of Finance (Department of Revenue). Therefore, the impugned show cause notice proposing the recovery of interest is not at all sustainable and is liable to be dropped.

5)            We further submit that the impugned show cause notice has invoked extended period of limitation to confirm interest and penalty for 100% credit availment for capital goods in financial year 2013-14. In this regard, we submit that the extended period of limitation is not at all invokable in our case as nothing was suppressed from the revenue department. This is evidenced from the fact that the cenvat credit availment was duly reflected in the Excise Returns filed by us. Moreover, the objection regarding 100% credit availment on capital goods was recorded and reflected in the books of accounts and returns filed by us. As such, there was no suppression of facts with intention to evade payment of duty. Moreover, the 100% credit availment was backed by clarification issued by Ministry of Finance and it cannot be considered that there was any malafide intention on our part. Therefore, none of the ingredients to invoke extended period of limitation are present in our case and the demand of interest is barred by the clause of limitation. Hence, the impugned show cause notice is liable to be vitiated.

6)            In continuation to the above, we wish to place reliance on certain judicial pronouncements wherein it has been concluded that the time limit prescribed in section 11A of the Central Excise Act, 1944/Section 73 of the Finance Act, 1994 is also applicable for the demand of interest. The citations of the decisions along with synopsis are produced as follows:-

·         COMMISSIONER V. T.V.S. WHIRPOOL LTD. - 2000 (119) E.L.T. A177 (S.C)] wherein the Hon’ble Supreme Court confirmed the order of the Tribunal stating that:-
“It is only reasonable that the period of limitation that applies to a claim for the principal amount should also apply to the claim for interest thereon. We find no merit in the appeals and they are dismissed with costs.”
·         COMMISSIONER OF CENTRAL EXCISE VERSUSVAE VKN INDUSTRIES PVT. LTD. [2015 (322) E.L.T. 269 (P & H)]wherein it was held that:-

Demand for interest - Limitation - Extended period not invocable when duty paid on supplementary invoices - Period of limitation prescribed for demand of duty under Section 11A of Central Excise Act, 1944 to be applicable for demand of interest also for delayed payment of duty - Duty being paid on supplementary invoices on price revision and duly reflected in monthly returns - No case of invoking extended period - Limitation period of one year applicable for demand of interest on differential duty - Sections 11A, 11AA and 35G ibid. [para 6]
·         KWALITY ICE CREAM COMPANY VERSUS UNION OF INDIA [2012 (281) E.L.T. 507 (Del.)] wherein it was concluded that:-

Demand for interest - Limitation - Period of limitation prescribed for claim of principal amount should also apply to the claim for interest thereon- Period of limitation for claim of interest on demand of duty under Section 11A of Central Excise Act, 1944 (corresponding to Section 28 of Customs Act, 1962), is normally 1 year and in exceptional circumstances 5 years in the case of misstatement, fraud, concealment, etc. - Demand for interest raised after 3 years of payment of demand of duty, time-barred hence set aside. [2000 (119) E.L.T. A177 (S.C.) followed]. [para 5]
·         FARIDABAD METAL UDYOG PVT. LTD. VERSUS COMMISSIONER OF C. EX., DELHI-IV [2015 (321) E.L.T. 569 (P & H)]wherein it was concluded that:-
Demand - Interest on belated payment of duty - Limitation - Demand of interest for belated payment of duty raised on 28-1-2008 after CESTAT’s order confirming demand which was raised by show cause notice dated 29-9-1997 - HELD : Applicability of this Court’s order in another case holding that period of limitation uMess otherwise stipulated by statute, which is applicable to claim for principal amount is applicable to claim for interest thereon, not disputed by respondent - Demand time-barred -Section 11AB of Central Excise Act, 1944. [para 4]

·         JAI BHARAT MARUTI LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE, DELHI-III [2014 (307) E.L.T. 282 (P & H)]wherein it was held that:-

Demand - Limitation - Period prescribed therefor, applies to demand for interest on the differential duty also - Thus, limitation period of one year prescribed for recovery of principal amount applies to interest on differential duty as well - On facts, held that limitation period of one year would apply as respondent-authority neither contended that any other period of limitation applied nor that short payment was due to fraud, collusion, etc. - Sections 11A, 11AB and 35G of Central Excise Act, 1944. [paras 9, 10]

·         NEEL METAL PRODUCTS LTD. VERSUS COMMISSIONER OF C. EXCISE, DELHI-III [2014 (306) E.L.T. 367 (P & H)]wherein it was concluded that:-
Interest - Demand for, on differential duty though same discharged at the time of issue of supplementary invoices - Permissibility of, invoking extended period of limitation - Relying on decision in Jai Bharat Maruti Ltd. (C.E.A. No. 49 of 2012 decided on 12-9-2013), held that interest cannot be demanded beyond normal period of limitation of 1 year from the date of supplementary invoice under Section 11A read with Section 11AB of Central Excise Act, 1944 as limitation applicable to claim for principal amount will apply to interest amount, when short-payment was not due to fraud, collusion viz. intentional, deliberate or deceitful means- Sections 11A, 11AB and 35G ibid. [paras 8, 9]

·         HINDUSTAN INSECTICIDES LTD. VERSUSCOMMISSIONER OF CENTRAL EXCISE, LTU [2013 (297) E.L.T. 332 (Del.)]wherein it was held that:-
Demand - Limitation - Interest - Duty paid initially on provisional price - On subsequent price revision with retrospective effect, assessee issued supplementary invoices for price difference and paid Excise duty thereon suo motu without any proceedings being initiated by Revenue - HELD : It was reasonable that limitation applicable to claim for principal amount should also apply to interest claim - Payment of interest is to be made under Section 11A of Central Excise Act, 1944 and, therefore, period of limitation prescribed therein would equally apply - As short payment was not due to fraud, collusion viz. intentional, deliberate or deceitful means, limitation of one year was applicable. [paras 11, 14]
·         COMMISSIONER OF C. EX., LUCKNOW Versus ANNAVARMA CONCRETE (P) LTD. [2011 (263) E.L.T. 469 (Tri. – Del)]wherein it was held that:-
Demand of interest - Limitation - Period of demand relating to April, 2005 to Sep. 2005 - Investigation in Sep. 2005 and duty paid immediately on pointing out - SCN for demand of interest and penalty issued only on 18-12-2006 - No allegation in SCN with regard to suppression of facts, mis-statement, fraud, collusion, etc. - Tribunal in case of Krishna Engg. Works after considering Apex Court Judgment in case of SKF Ltd. had held that principle of limitation for principal amount also available for recovery of interest - SCN issued beyond one year time barred - No question of penalty - Sections 11AB and 11AC of Central Excise Act, 1944. [para 5]

In light of the above referred decisions, we submit that the Supreme Court, Punjab & Haryana High Court, Delhi High Court etc. have consistently held that the limitation applicable for demand is equally applicable for demand of interest also. Therefore, when the show cause notice does not allege any fraud, willful suppression, misstatement of facts with intention to evade payment of duty, then it is clear that only normal period of limitation would apply in our case. Therefore, the demand of interest is clearly time barred because the relevant excise returns were filed by us in financial year 2013-14 but the present show cause notice has been issued on 16.06.2016. As such, the demand of interest is not at all sustainable on the grounds of limitation.
7)            We further submit that penalty under Rule 15(2) of the Cenvat Credit Rules, 2004 read with section 11AC (1)(c) of the Central Excise Act, 1944 has also been proposed against us. In this respect, we have already put forth the bonafides of our case that we have correctly taken 100% cenvat credit of capital goods in the financial year 2013-14 and there was no malafide intention on our part. Consequently, no penalty should be imposed on us as presence of mens-rea is a mandatory requirement for imposing penalty and in the absence of which imposition of penalty is unjustified, as enshrined by the Hon'ble Supreme Court in the case of Hindustan Steel Ltd v/s. State of Orissa - [1978 (2) ELT (J-159)] and number of subsequent judgments from various judicial fora based thereupon. It is submitted that none of the acts were backed up with any ulterior motive or malafide intention to evade duty and therefore, imposition of penalty is incorrect and uncalled for based on settled position on the issue. It is further submitted that the Hon’ble Punjab & Haryana High Court, following the ratio of Apex Court judgment in Hindustan Steel Ltd. (supra), has held that mens-rea is a mandatory requirement for imposition of penalty, in support of which reliance is placed on the ratio of following judgments:

·         2010 (258) ELT 465 (SC) – Sanjiv Fabrics

·         2007 (207) ELT 27 (P &H) – UT Ltd

·         2007 (5) STR 251 (P & H) – Kamal Kapoor

In the above decisions, it was held that the penalty is imposable only if there was malafide intention on part of the assessee, else it will not sustain. In the instant case, no malafide intention is proved. Moreover, we have acted in accordance with clarification issued by Ministry of Finance (Department of Revenue). In view of the above submissions, the impugned show cause notice is not sustainable and should be set aside.
8)            In continuation it is submitted that the issue involved herein is that of interpretation of legal provisions and where interpretation of legal provisions is involved penalty cannot be imposed on the assessee. This contention has been upheld in the case of UNIFLEX CABLES LTD V/S COMMISSIONER OF CENTRAL EXCISE, SURAT-II [2011-TIOL-85-SC-CX] wherein it was held as under:
Central Excise – No penalty in a case of interpretational nature: The Commissioner, himself in his order-in-original has stated that the issue involved in the case is of interpretational nature, Keeping in mind the said factor, the Commissioner thought it fit not to impose harsh penalty and a penalty of an amount of Rs. 5 lakhs was imposed on the appellant while confirming the demand of the duty. Therefore, in the facts and circumstances of the present case, penalty should not have been imposed upon the appellant.
Thus, hon’ble Supreme Court has held that penalty is not imposable in the issues involving the interpretation of legal provisions. In our case also, the issue revolves around interpreting the third proviso to Rule 4(2)(a) of the Cenvat Credit Rules, 2004 and so penalty is not warranted in our case and the impugned show cause notice should be quashed.
9)            We further submit that the penalty proposed cannot be imposed on us as were under the bonafide belief that we are entitled to avail 100% cenvat credit on capital goods in the financial year 2013-14 in view of clarification issued by the Ministry of Finance (Department of Revenue). Even the highest court of India – Hon’ble Supreme Court has held in the case of COMMISSIONER OF CENTRAL EXCISE, TRICHY VERSUS GRASIM INDUSTRIES LTD. [2005 (183) E.L.T. 123 (S.C.)] that where the act of assessee is based on the interpretation taken by the Tribunal, penalty cannot be imposed as the act is based on bonafide belief. The verdicts of Apex Court are produced as follows:-

“Penalty - Bona fide belief caused by Tribunal’s decision - Tribunal in a number of cases giving an interpretation as understood by assessee - Penalty not imposable - Rule 173Q of erstwhile Central Excise Rules, 1944 - Rule 25 of Central Excise Rules, 2002. [para 20]”
The analysis of above decision makes it clear that since we have acted under bonafide, no penalty can be imposed on us. Therefore, the benefit of above decision of Hon’ble Supreme Court should be extended to us and the whole proceedings should be dropped.

We hope the above is in order. An opportunity of personal hearing should be granted to us before deciding the case.

Reasoning of the Adjudicating Authority:- I have carefully gone through the case records and find that in the show cause notice, it was alleged that M/s Marudhara Polypack Pvt.ltd..F-662&. G681-682 Boranada Ind.Area, Jodhpur-342001 holder of Central Excise Registration No. AAICM1035CEM001for manufacture of PP unlamented fabrics (39269080),PP Bags/sacs (39231090) falling under Chapter 39269080 and 39231090 of the First Schedule to the Central Excise Tariff Act, 1985, the assessee has set up a new factory for manufacturing PP unlamented fabrics, PP Bags/sacs and for that the assessee has procured the capital goods during the said period and took 100% credit of cenvat paid on the capital goods during the same financial year i.e. 2013-14 i.e. Rs.61,85,180/- , whereas as per the provisions of rule 4 (2) (a) of the CCR, 2004, the assessee was eligible to take only 50% credit of cenvat paid on capital goods i.e. Rs.30,92,590. Thus the assessee has wrongly availed 50% Cenvat credit on Capital Goods in the same financial year 2013-14 and have contravened the provision of Rule 4(2)(a) of Cenvat Credit Rules, 2004.
The issue before me to decide that whether the assessee is eligible to take 100% Cenvat
Credit on Capital Goods in same financial year when they are eligible for SSI exemption irrespective to whether they availed the benefit or not.
Before proceeding, it is imperative to reproduce the provisions of Rule 4 of the CenvatCredit Rules. 2004 prescribing conditions for allowing cenvat credit are pertinent to note.

Rule 4(2)(a):-The Cenvat Credit in respect of capital goods received in a factory or in the premises of the provider of output service or outside the factory of the manufacturer of the final products for generation of electricity for captive use within the factory or in the premises of the job worker, in case capital goods are sent directly to the job worker on the direction of the manufacturer or the provider of output service, as the case may be at any point of time in a given financial year shall be taken only for an amount not exceeding fifty per cent of the duty paid on such capital goods in the same financial year.

Provided that the cenvat credit in respect of capital goods shall be allowed for the whole amount of the duty paid on such capital goods in the same financial year if such capital goods are cleared as such in the same financial year.

Provided further that the cenvat credit of the additional duty leviable under sub-section (5) of section 3 of the Customs Tariff Act, in respect of capital goods shall be allowed immediately on receipt of the capital goods in the factory of a manufacturer.

Provided also that where an assessee is eligible to avail of the exemption under a notification based on the value of clearances in a financial year, the cenvat credit in respect of capital goods received by such assessee shall be allowed for the whole amount of the duty paid on such capital goods in the same financial year.

I have carefully gone through above provision of Rule 4 of the Cenvat Credit Rules, 2004 and find that the above cited provision clearly states that if an assessee is eligible to avail exemption under a notification based on value of clearances such as small scale exemption, the assessee is eligible to avail entire credit of capital goods in the same financial year. In the present case, the capital goods were procured in 2013-14, during which they were eligible to avail the benefit of small scale exemption. This is for the reason that the aggregate value of clearances in the financial year 2012-13 was nil, i.e., below the threshold limit of 400 lakhs and so they were entitled to claim benefit of small scale exemption in the financial year 2013-14. According to Show Cause Notice the assessee has set up a new factory for manufacturing and there aggregate value of clearances in the financial year 2012-13 was nil. The provision merely states that the assessee should be eligible to avail the exemption under notification based on value of clearances in a financial year.
Ongoing through the clarification issued by the Ministry of Finance (Department ofRevenue) vide D.O.F. No. 334/1/2010-TRU dated 26.02.2010 when the third proviso was inserted in Rule 4(2)(a) of the Cenvat Credit Rules, 2004 regarding 100% credit admissibility to assessee eligible to claim benefit of exemption under notification based on value of clearances. The clarification regarding the insertion of this third proviso was given in para 10 and find that the important point about these relaxations is that they are available to any assessee who is `eligible' to claim SSI exemption regardless of whether he actually claims it or opts to pay duty. An 'eligible' unit has been defined as one whose aggregate value of clearances did not exceed Rs. 4 Crores in the preceding financial year. Moreover, the benefit is available to a unit that is eligible for the entire financial year even if it crosses the limit of Rs. 4 Crore (aggregate value of clearances) during the year.
From the above clarification, it is clear that the assessee was entitled to claim 100%cenvat credit on capital goods in the financial year 2013-14. The third proviso to Rule 4(2)(a) merely states that 100% cenvat credit on capital goods will be available to assessee eligible for claiming exemption under notification based on value of clearances. It does not mandates actual availment of exemption notification and complying of the conditions of exemption notification. However, for taking 100% cenvat credit of capital goods, the only requirement was to establish that they were eligible to claim SSI exemption. The actual availment of exemption and satisfaction of conditions for availing SSI exemption are irrelevant.
In view of above I hold that the assessee was eligible to take 100% Cenvat Credit on capital goods during the year 2013-14 as they were eligible to claim benefit of exemption under notification based on value ofclearances. Their value of clearance in financial year 2012-13 was zero as they set up new plant and for taking 100% cenvat credit of capital goods, the only requirement was to establish that they were eligible to claim SSI exemption. The actual availment of exemption and satisfaction of conditions for availing SSI exemption are irrelevant. Hence, the contention of wrong availment of 100% cenvat credit of capital goods is not at all sustainable and is liable to be quashed.

Order of Central Excise and Service tax Department, Jodhpur: -I drop the proceeding initiated by Show cause Notice No IAR/696/Gr-L-2/2015-16/1129 dated 16/09/2016 issued to M/s Marudhara Polypack Pvt. Ltd., F-662 & G681-682 Boranada Ind.area, Jodhpur-342001
Decision:- The proceedings initiated vide the show cause notice were dropped.
Conclusion: -The analogy of this case is that the assesse is eligible to avail of the exemption under a notification based on the value of clearances in a financial year, the cenvat credit in respect of capital goods received by such assessee shall be allowed for the whole amount of the duty paid on such capital goods in the same financial year.
In the assesses case, the capital goods were procured in 2013-14, during which they were eligible to avail the benefit of small scale exemption. This is for the reason that the aggregate value of clearances in the financial year 2012-13 was nil, i.e., below the threshold limit of 400 lakhs and so they were entitled to claim benefit of small scale exemption in the financial year 2013-14.
The benefit of small scale exemption will be available even if there were no clearances in the preceding financial year as zero clearance is also within the threshold limit of 400 Lakhs.
In assesses case the extended period of limitation is not at all invokable nothing was suppressed from the revenue department. This is evidenced from the fact that the cenvat credit availment was duly reflected in the Excise Returns filed by assesse. Moreover, the objection regarding 100% credit availment on capital goods was recorded and reflected in the books of accounts and returns.

No penalty can be imposed on the assessee because it is an interpretational issue raised by the department.
So from above it is clear that assesse was entitled to claim 100% cenvat credit on capital goods in the financial year 2013-14.No penalty and interest liability can be imposed on assesse.

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PJ/CaseStudy/2016-17/114
11 February 2017

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PJ/CaseStudy/2016-17/114
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