By TIOL News Service

MUMBAI, JAN 15, 2014: THE appellant is a manufacturer of lubricating oils and is availing CENVAT credit on various inputs and capital goods. They availed CENVAT credit amounting to Rs.1,61,04,675/- of the CVD paid on imported base oil during July, 2003 to September, 2004. The goods were imported by M/s Valvoline Cummins Ltd. and the entire goods were transferred to the appellant for storage purposes. The B/E was also endorsed in favour of the appellant. The base oil on which credit was taken was returned by the appellant to M/s. VCL and M/s. Ultraplus Lube Pvt. Ltd. and the appellant paid excise duty equivalent to the credit taken on such base oil returned.

The department was of the view that taking of credit by the appellant was not permitted under law inasmuch as the goods were not intended for use in the manufacture of excisable goods and, therefore, credit was not admissible under CCR, ab initio.

Accordingly, a SCN dated 02.06.2008 was issued to the appellant proposing to recover the credit taken along with interest thereon and imposition of penalties.

The CCE, Belapur confirmed the demand along with interest and imposed equivalent penalty. He also imposed a fine of Rs.1 crore on the ground that the base oil was liable to confiscation.

Aggrieved by the same, the appellant is before the CESTAT.

It is submitted that since the appellant had already reversed the credit taken at the time of clearance of the base oil to M/s. VCL and Ultraplus Lube Pvt. Ltd., the question of reversal of credit once again does not arise and, therefore, the demand is not sustainable. It is further pleaded that the demand is time barred because the period covered is 2003-2004 and the SCN was issued in June 2008; that the appellant had reflected the taking of CENVAT credit on base oil received from VCL in their monthly ER-1 returns and, therefore, no suppression could be alleged; that the said credit was available in the books of accounts during the entire period and the appellant had never utilized the credit and so no interest is payable. So also, Rule 14 of the CCR, 2004, was amended vide a Notification No. 18/2012-CE (NT) dated 17.03.2012 whereby the phrase "CENVAT credit has been taken or utilized wrongly" was substituted by the words "CENVAT credit has been taken and utilized wrongly" and this substitution will have retrospective effect and, therefore, unless the appellant utilizes the credit, the question of recovery of interest would not arise. Reliance is inter alia placed on the following decisions - CCE & S.T., LTU, Bangalore vs. Bill Forge Pvt. Ltd. - (2011-TIOL-799-HC-KAR-CX), CCE Bangalore vs. Pearl Insulation Ltd. - (2011-TIOL-955-CESTAT-BANG), Indian Tobacco Association - (2005-TIOL-109-SC-CUS) and W.P.I.L. Ltd. vs. CCE - (2005-TIOL-51-SC-CX-LB).

The Revenue representative justified the order of the adjudicating authority by reiterating the contents of the same.

The Bench while upholding the allegation of the department that the appellant was ab initio ineligible for taking credit also observed -

++ Under the CENVAT Credit Rules, 2004 when inputs are cleared as such, the appellant is liable to discharged duty liability thereon by reversing the CENVAT credit taken which the appellant has done in the instant case and therefore, the question of recovery of CENVAT credit which has already been reversed at the time of clearance of base oil cannot be sustained in law as it would amount to double demand of duty. It is a settled position in law that reversal of CENVAT credit taken would amount to discharge of duty liability. Therefore, the confirmation of demand once again on base oil is not sustainable in law.

On the question of imposition of interest, the Bench distinguished the case laws cited by the appellant and after noting that the decision of the apex court in the case of Union of India vs. Ind-Swift Laboratories Ltd. - (2011-TIOL-21-SC-CX) would prevail over other all other decisions, confirmed the demand made of interest.

The question of whether the amendment made to rule 14 is to be construed as operational retrospectively was also negated by the CESTAT in the following words -

"This amendment rule makes it absolute clear that the amendment is with effect from 17.03.2012 and not before. In view of the express provisions in the Amendment Rules, the argument of the appellant that amendment being in the nature of substitution would have retrospective effect cannot be accepted. It is a trite law that every statutory provision is prospective only unless it is explicitly provided that it is retrospective in nature and the legislature provides for such retrospective operation. In the present case, no such retrospectivity has been provided by the legislature in respect of Notification 18/2012-CE (N.T.) dated 17.03.2012 and, therefore, the argument of the Counsel in this regard and the decisions relied upon in support of the same cannot be accepted."

The CESTAT also agreed with the invocation of the extended period of limitation by observing that in the ER-1 returns the appellant had not declared that the goods on which credit has been taken is not intended for use in or in relation to the manufacture of excisable goods; arrangements which the appellant had with VCL for the storage of the goods and its return as and when needed was never disclosed to the department.

In the matter of penalty, the Bench observed that even though the appellant had taken the credit wrongly they did not utilize the said credit at any point of time and which clearly shows that the appellant had no intention to evade any duty. Holding that there is no mensrea the CESTAT set aside the penalty imposed u/r 15 of CCR and rule 26 of the CER.

As for imposition of redemption fine, it is the view of the Bench that since the goods are not available for confiscation, the appellant is not liable to pay any fine; redemption fine is imposable only when the goods are actually confiscated and the goods are available for redemption.

In fine, the interest liability was upheld. As the credit was reversed at the time of removal of the goods, the question of demanding the same once again would not arise, the Bench held. The penalties and redemption fine were also set aside.

The appeal was disposed of in the above terms.

(See 2014-TIOL-69 -CESTAT-MUM)