Custom, Excise & Service Tax Tribunal
Force Motors Limited vs Commissioner Of Customs Central Excise ... on 31 January, 2025
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
NEW DELHI
PRINCIPAL BENCH - COURT NO. 3
Virtual Hearing
Excise Appeal No. 50014 of 2024 - SM
(Arising out of Order-in-Appeal No. IND-EXCUS-000-APP-126-2023-24 dated
16.08.2023 passed by the Commissioner, Customs, CGST & Central Excise,
Indore, Madhya Pradesh - 452 014.)
Force Motors Limited Appellant
Plot No. 3, Sector-1,
Industrial Area,
Pithampur - 454 775.
District Dhar, Madhya Pradesh.
Versus
The Commissioner, Customs, CGST & Respondent
Central Excise, Indore Manik Bagh Palace, Madhya Pradesh - 452 014.
Appearance:
Present for the Appellant: Shri S.A. Gundecha, Advocate Present for the Respondent: Shri Kuldeep Rawat, Authorized Representative CORAM:
Hon'ble Ms. Binu Tamta, Member (Judicial) Date of Hearing : 09/01/2025 Date of Decision : 31/01/2025 Final Order No. 50121/2025 Binu Tamta M/s Force Motors Ltd. 1 has filed the present appeal challenging the Order-in-Appeal No. IND-EXCUS-000-APP-126- 2023-24 dated 16.08.2023 confirming the order in original disallowing the Cenvat Credit of Rs. 3,06,675/- while dropping the demand of Rs.40,51,145/. Hence, the present appeal relates 1 the appellant 2 E/50014/2024-SM only to the disallowance of credit towards transportation and difference in the amount received from the insurance company.
2. Facts of the case are that the appellant is engaged in the manufacture of motor vehicles and motor vehicle parts and had been availing the facility of Cenvat Credit under the Cenvat Credit Rules, 20042. During the audit of the records /document submitted by the appellant, it was observed that they had wrongly availed the credit on the amount of free service coupon provided by their dealers after sale of the goods, (vehicles). It was also observed that the appellant had reported loss due to damaged goods valued at Rs. 4,83,825/- against which they had received insurance claim of Rs. 5,60,555/-. The appellant reversed the Cenvat Credit availed on the damaged goods valued at Rs. 4,83,825/- but failed to pay or reverse the balance credit of Rs. 11,793/- on the differential amount of Rs. 76,730/- of the value of the damaged goods and amount actually received through insurance claim hence, they were liable to pay or reverse the balance credit of Rs.
11,793/-. The appellant agreed with the audit objection and paid Cenvat credit of Rs. 3,067/- along with interest of Rs. 2,412/- and penalty of Rs. 460/-, but did not pay the balance amount of credit of Rs. 8,726/- along with interest penalty as applicable. Also that they had received the Cenvat credit amounting to Rs. 2,94,882/- of service tax paid on transportation charges on account of goods returned under Rule 16 of Central Excise Rules 2002. Show cause notice dated 03.09.2021 was issued which was confirmed by the adjudicating authority by order in original dated 30.05.2022 and by 2 CCR, 2004 3 E/50014/2024-SM the impugned order. Hence, the present appeal has been filed by the appellant before this Tribunal.
3. Heard Shri S.A. Gundecha, learned Advocate for the appellant and Shri Kuldeep Rawat, learned Authorized Representative for Revenue.
4. The learned counsel for the appellant submitted that the cost incurred on the input services for bringing the vehicles cleared from the factory of the appellant back into the factory of manufacture for the purpose of repair/remaking is an input service and, therefore he is entitled to retain the amount of Cenvat credit in respect of service tax charged by the transporting agency. Reversal of credit on labour charges was challenged on the ground that the employees who were engaged were directly employees of the appellant and hence there is no question of availing of any credit which requires reversal. Challenge is also being made to the invocation of the extended period and imposition of interest and penalty.
5. The learned Authorized Representative reiterated the findings of the authorities below. He submitted that the ingredients to avail the credit of duty in respect of goods brought back to the factory in terms of Rule 16(1) of the Rules was not satisfied. The appellant was not entitled to avail the benefit of Cenvat Credit of GTA on the goods and therefore, wrongly claimed such credit. In respect of the labour cost for repair of damage goods, the appellant had 4 E/50014/2024-SM claimed it from the Insurance Company but has failed to reverse the appropriate amount of input services used in the said process. The appellant suppressed the material facts with intent to wrongly avail the credit in contravention of the provisions of the Rules and hence the extended period has been rightly invoked, and the penal action is justified. The appeal therefore, devoid of any merits needs to be dismissed.
6. The issue in the present case relates to reversal of Cenvat Credit in respect of the service tax charged by the transporter to re-transport the vehicles from depot to the factory and reversal of credit being part of insurance claim. Since the controversy centres round the provisions of Rule 16, the same is quoted below:
"16. Credit of duty on goods brought to the factory.
(1) Where any goods on which duty had been paid at the time of removal thereof are brought to any factory for being re-made, refined, re-conditioned or for any other reason, the assessee shall state the particulars of such receipt in his records and shall be entitled to take CENVAT credit of the duty paid as if such goods are received as inputs under the CENVAT Credit Rules, 2002 and utilize this credit according to the said rules. (2) If the process to which the goods are subjected before being removed does not amount to manufacture, the manufacturer shall pay an amount equal to the CENVAT credit taken under sub-rule (1) and in any other case the manufacturer shall pay duty on goods received under sub-rule (1) at the rate applicable on the date of removal and on the value determined under sub-section (2) of section 3 or section 4 or section 4A of the Act, as the case may be.
[Explanation. - The amount paid under this sub-rule shall be allowed as CENVAT credit as if it was a duty paid by the manufacturer who removes the goods.] (3) If there is any difficulty in following the provisions of sub- rule (1) and sub-rule (2), the assessee may receive the goods for being re-made, refined, re-conditioned or for any other reason and may remove the goods subsequently subject to such conditions as may be specified by the Principal Commissioner or Commissioner, as the case may be.""
5
E/50014/2024-SM
7. The first condition in Rule 16 is that the goods on which duty has been paid at the time of removal are brought back to the factory. Secondly, the assessee is entitled to take Cenvat credit if such goods are received to be used as inputs under the Cenvat Credit Rules, 2002 3 . Sub-rule (2) further clarifies that after carrying out the process of repairing, which does not amount to manufacture, the assessee is required to pay an equal amount of Cenvat Credit taken by them under sub-rule (1). In clear terms, sub-rule (2) provides that the re-credit which was taken upon the return of the goods for repair, remake or reconditioning, the re- credit taken shall be reversed as and when the said goods are cleared, however, if the goods returned were subjected to the process amounting to manufacture, then the assessee shall be liable to pay excise duty on such removal under the Act.
8. The appellant is claiming credit on transportation of vehicles received back after sale under the provisions of Rule 16 of the rules. The provisions of Rule 16 have to be read inconformity with the provisions of the Cenvat Credit Rules, 2004 which primarily governed the availment of Cenvat credit. Hence Rule 16 cannot go beyond the provisions of the CC Rules. Considering the definition of 'input service' under Rule 2(l) which refers to services provided by way of transportation of goods where any service is used by a manufacturer in relation to manufacture of final products and clearance of final products up to the place of removal. Such is not the case here as the activity carried out by the appellant does not amount to manufacture and, therefore, the said provisions are 3 CC Rules, 2002 6 E/50014/2024-SM inapplicable. Consequently, the ingredients to avail credit of duty of goods brought back to the factory in terms of Rule 16 read with Rule 2 (l) are not satisfied and, therefore, the appellant is not entitled to avail the benefit of Cenvat credit of the GTA paid on the aforesaid goods.
9. The decision of the Principal Bench in National Engineering industries Ltd Vs. Commissioner of C.EX., Jaipur -I4 supports the view that the appellant is not required to pay the excise duty when such reprocessed goods are cleared but required to reverse the Cenvat credit availed at the time of re-entry of the goods back into the factory. This finds support from the specific provisions in Rule 16 of Central Excise Rules, 2002.
10. Further, no reliance can be placed on the decision by the learned counsel for the appellant in the case of M/s Jayaswal Neco Industries Ltd. Vs. CCE, Nagpur5 as the same has been passed de-hors the provisions of the CC Rules.
11. There is no reason to interfere with the findings that the ingredients to avail credit of duty of goods brought back to the factory, as contemplated under Rule 16(1) were not satisfied. The appellant having wrongly availed the benefit of the credit on the service tax paid on transportation charges is liable to reverse the said amount along with interest.
4 2018 (363) ELT 1136 (Tri. Del.) 5 2016 (44) STR 116 (Tri.-Mum) 7 E/50014/2024-SM
12. The loss due to damaged goods was valued at Rs. 4,83,825/- and against the same appellant received the insurance claim of Rs. 5,60,555/-, however, they reversed the credit on the amount of Rs. 4,83,825/- and failed to reverse the balance amount of credit of Rs. 11,793/- on the differential amount of Rs. 76,730/-. Therefore, the appellant was liable to reverse the credit of Rs. 11,793/- wrongly retained by them. In fact, the appellant had agreed and actually paid the Cenvat credit of Rs. 3,067/- along with interest and penalty, but failed to pay the balance amount of Rs.8,726/-. There seems to be no error in the demand raised and confirmed in this regard.
13. The appellant has also challenged the reversal of the Cenvat credit in respect of labour cost on the ground that they were the employees of the appellant. The appellant in their synopsis had submitted that they received a sum of Rs. 5,60,555/- towards the insurance claim which consisted cost of material of Rs. 4,83,825/- and the cost of labour of Rs. 1,56,717/-. From their own submissions, it is apparent that the amount received from the insurance company included the cost of labour and consequently, they were required to reverse the same.
14. On the issue of limitation, the learned counsel for the appellant submitted that the period from June 2016 to July 2016, was beyond the period of five years, hence the same is time barred. Agreeing with the contention of the learned counsel, the demand for the period June 2016 to July 2016 is set aside being 8 E/50014/2024-SM beyond the period of five years. The next contention of the learned counsel that there was no suppression and the department had full information as they had periodically filed their ER-1 returns has no merit as noted by the adjudicating authority that the details shown in the ER-1 returns did not discuss the details of Cenvat Credit availed by them. The show cause notice has also alleged that the appellant had not disclosed the facts of having taken irregular credit or about the short reversal of credit to the department. Therefore, the allegation of wilful suppression to evade payment of duty has been made out and therefore, the invocation of the extended period of limitation is justified in the facts of the present case.
15. The penalty imposed under section 11AC of the Act on account of suppression of facts so as to evade duty liability is mandatory and there is no reason to interfere with the same. The learned counsel for the appellant have sought to plead the absence of mens-rea/guilty mind on the part of the appellant. He relied on the decisions of the Apex Court in Union of India Vs. Rajasthan Spinning & Weaving Mills 6 and Commissioner of Central Excise, Chandigarh Vs. Pepsi Foods Ltd. 7 -laying down that criminal intent or mens rea is a necessary constituent for imposition of penalty under Section 11AC. There cannot be any quarrel with the principle enunciated by the Apex Court in the said decisions and other line of decisions in this regard, however the intent has to be gathered from the facts of the case. The action/inaction on the 6 2009 (238) ELT 3 (SC) 7 2010 (260) ELT 481 (SC) 9 E/50014/2024-SM part of the assessee points to the intent to evade duty and the same is writ large in the present case as though ER-1 Returns were filed by the appellant, however, the fact of availing the Cenvat credit on transportation charges was missing deliberately as the appellant knew that the activity carried out by them and did not amount to manufacture which is further evident by not availing the Cenvat credit in terms of Rule 16(1).
16. On merits there is no reason to interfere with the order of the authorities below which is affirmed herein, except to the extent that the demand for the period, June 2016 to July 2016 is barred by limitation being beyond the period of five years. The appeal is, accordingly, partly allowed.
(Pronounced in open Court on 31/01/2025) (Binu Tamta) Member (Judicial) RM