CX - Indifferent attitude of Department is arbitrary exercise of power denying legal entitlement of assessee - Order denying credit quashed: High Court
By TIOL News Service
BANGALORE, MARCH 14, 2018. THE Petitioner has challenged the order dated 30.08.2016 passed by the CCE, Mangalore denying CENVAT credit to an extent of Rs.16,43,129/- accruing for the period, November 2012 to December 2013.
They were issued a show cause notice dated 20.06.2014 seeking to deny CENVAT credit on the ground that the assessee was a defaulter and as such, not entitled for the CENVAT credit in terms of Rule 8(3A) of the CER, 2002.
Incidentally, in respect of the said SCN, the petitioner had filed an application for Settlement of their case but their application was rejected. This rejection was made by placing placing reliance on the reply of the Commissioner dated 28.06.2016 wherein it is mentioned that no proper books of accounts were submitted; that no invoices were produced by the assessee.
It is the case of the petitioner that Rule 8(3A) of Rules, 2002 was declared ultra vires and unconstitutional in the case of Indsur Global Limited - 2014-TIOL-2115-HC-AHM-CX and, therefore, no cause arises for denying credit; that, however, the department had shifted its stance for denying credit by contending that no books of accounts were maintained and that the burden lies on the assessee to prove that the goods have been actually received in the factory and used in the manufacture of final products.
The High Court considered the submissions and observed -
+ It is not in dispute that the department denied CENVAT credit for the period November 2012 to December 2013 only for the reason that the assessee defaulted in payment of duty from October 2012 onwards and as the said default continued for more than 30 days, they are not eligible to utilize the disputed CENVAT credit as per the provisions of Rule 8(3A) of the Rules 2002.
+ It is also not in dispute that the Constitutional Validity of the said Rule 8(3A) of the Rules 2002 was challenged before the High Court of Gujarat in the case of Indsur (supra) and the Gujarat High Court has declared the said Rule as ultra vires and unconstitutional.
+ Such being the position, the department insisted the assessee to produce invoices. The same having been submitted, new objection was raised by the jurisdictional Commissioner that the assessee has not maintained the books of accounts in terms of Rule 10 of the Rules 2002 which was considered by the Settlement Commission to reject the claim of CENVAT credit.
+ It is hardly required to be stated that CENVAT credit is the benefit available to the assessee after payment of duty and interest.
+ At the initial stage, it was admitted by the Department that the assessee is legally entitled to the said CENVAT credit but the default being committed for more than 30 days, the same was denied. Before the Settlement Commission the same cannot be shifted over to any other new ground to deny the CENVAT credit. No other reason can be assigned by the Settlement Commission other than what was stipulated in the show cause notice and the reports issued.
Concluding that no denial of CENVAT credit of Rs.16,43,129/- for the period of November 2012 to December 2013 can be made, the impugned order was quashed.
The Respondent was directed to consider the claim of the assessee inasmuch as CENVAT credit of Rs.16,43,129/- and adjust the same towards the payment of duty and interest.
The Writ Petition was allowed.
In passing: Incidentally, the Gujarat High Court decision (in Indsur Global Ltd.) has been stayed by the Supreme Court on 24 September 2015.
It is held - There shall be interim stay of the impugned judgment and order passed by the High Court of Gujarat at Ahmedabad in Special Civil Application No.3344 of 2014, dated 27.11.2014.We restrain the petitioner(s) herein to recover a sum of Rs. 87,00,000/- (Rupees eighty seven lakhs only) from the respondent till the disposal of the Special Leave Petition (C)..C.C. No.16523 of 2015.
Interestingly, the CESTAT in the cases of Meenakshi Associates [para 15 and 16 in - 2012-TIOL-587-CESTAT, Baba Viswakarma Engg Co [para 11, 12 and 13 in - 2011-TIOL-2010-CESTAT-DEL and Bactolac Formulations [para 5 of - 2012-TIOL-970-CESTAT-BANG had allowed CENVAT credit to be used even during the period of default.
(See 2018-TIOL-439-HC-KAR-CX)
