Capital Goods CENVAT Credit Can’t Be Denied Just Because Remand Order Was Silent: CESTAT
Pranav B Prem
The Delhi Bench of the Customs Excise and Service Tax Appellate Tribunal has held that CENVAT credit on capital goods cannot be denied merely because an earlier remand order did not expressly refer to such credit, particularly when credit on inputs and input services had already been allowed. The Tribunal ruled that denial of capital goods credit in such circumstances is legally unsustainable and lacks any logical basis.
The Bench comprising Justice Mr. Dilip Gupta (President) and P. V. Subba Rao (Technical Member) was dealing with an appeal filed by a manufacturer earlier known as M/s Kunsons Metals Ltd., now Balar Marketing Private Limited. The case arose from central excise proceedings relating to job work undertaken during the period from 2008–09 to 2011–12 without payment of excise duty. The job work was claimed to be exempt under Notification No. 214/86-CE, which required the principal manufacturer to furnish an undertaking to discharge the duty liability.
As no such undertaking was furnished, the department issued a show cause notice and confirmed a duty demand of ₹2.37 crore along with interest. An equal penalty was imposed under Section 11AC of the Central Excise Act, 1944, and a separate penalty was levied on the company’s director. In an earlier round of litigation, the Tribunal in 2017 upheld the invocation of the extended period of limitation but granted substantial relief by allowing CENVAT credit on inputs and input services, subject to verification, granting cum-duty benefit, and directing re-quantification of duty and penalty accordingly. The matter was remanded only for the limited purpose of re-computation.
Pursuant to the remand, the Commissioner allowed CENVAT credit of approximately ₹1.99 crore on inputs and input services but disallowed credit of ₹2.86 lakh on capital goods. The sole reason for denial was that the remand order did not specifically mention capital goods credit. The duty was re-quantified at ₹2.09 crore, and an equivalent penalty was again imposed under Section 11AC.
Aggrieved by the denial of capital goods credit and the re-imposition of full penalty, the assessee approached the Tribunal. On the issue of capital goods credit, the Tribunal observed that there was no finding in the earlier remand order denying such credit. It noted that the issue of eligibility of capital goods credit had never been adjudicated earlier, and therefore, it could not be presumed to have been rejected. The Bench held that once CENVAT credit on inputs and input services was allowed, there was no legal or logical justification to deny credit on capital goods, especially when all credits form part of the same CENVAT scheme.
Turning to the issue of penalty under Section 11AC, the Tribunal undertook a detailed analysis of the statutory provision and emphasized that penalty equal to duty can only be justified to the extent of duty actually intended to be evaded. It held that where substantial CENVAT credit is admissible, intent to evade duty can only be attributed to the net duty payable after adjusting the eligible credit. The Tribunal noted that after including capital goods credit of ₹2.86 lakh, the total eligible CENVAT credit amounted to ₹2.02 crore against the recomputed duty of ₹2.09 crore. Consequently, the net duty sought to be evaded worked out to only ₹7.26 lakh.
In view of these findings, the Tribunal allowed the appeal by permitting CENVAT credit of ₹2.86 lakh on capital goods and restricting the penalty under Section 11AC to ₹7.26 lakh instead of over ₹2 crore. The assessee was held entitled to consequential relief.
Cause Title: M/S Kunsons Metals Ltd. Versus Commissioner Of Central Excise
Case No.: Excise Appeal No. 53710 Of 2018
Coram: Justice Mr. Dilip Gupta (President) and P.V. Subba Rao (Technical Member)
