CENVAT - Furnace oil used in hotel for generating steam which is used partly for manufacture of dutiable cakes & pastries & also used in laundry - Credit deniable to extent used in other than manufacture - no penalty: CESTAT
By TIOL News Service
MUMBAI, JUNE 10, 2015: THE appellants are engaged in manufacture of cakes, pastries, cookies and chocolates at its hotel premises. They had availed CENVAT Credit on 'furnace oil' as an input, which was used for generating steam partly for the manufacture of said products, which they were clearing on payment of Central Excise duty. During the course of audit, it was observed that only 7-9% approx., out of total steam generated is used to created humidity for baking products (excisable goods) like, cakes, pastries, cookies and chocolates. Rest quantity of the steam was used towards other activities outside the production area like, laundry, centralized air-conditioning, heating water supplied to hotel rooms etc.
So, the Revenue was of the view that since only the bakery/pastry division is where the excisable goods are manufactured and which is regarded as "factory" of production as per definition given in section 2(e) of the CEA, 1944,the other premises since not connected with the manufacture of excisable goods cannot be treated as covered within the ambit of "factory" and, therefore, CENVAT Credit cannot be availed for other use of steam.
SCN came to be issued for recovery of Rs.38,39,097/- for period October 2002 to December 2006 of which appellant had already reversed an amount of Rs. 17,92,351/- on 01.04.2003 and an amount of Rs. 62,19,387/- and on 01/04/2004 totalling Rs. 80,11,738/-. On adjudication, a demand of Rs. 38,39,097/- was confirmed by the adjudicating authority with interest and an equal amount of penalty was imposed under Section 11AC of CEA, 1944 r/w rule 15(2) of CCR r/w rule 25 of CER.
The Commissioner (Appeals) confirmed a demand of Rs. 35,31,969/- by holding that approximately 8% of the inputs have been used in manufacture of excisable goods. He also imposed an equivalent penalty.
Before the CESTAT the appellant submitted that the demand is time barred inasmuch as SCN was issued on 4 th June, 2007 for disallowing the credit availed during the period October, 2002 to Sept., 2006; that in view of the precedent judicial pronouncements, the appellant was under bona fide belief that in case of furnace oil, CENVAT Credit is admissible, even if the same is partly used in non-dutiable purpose. Reliance is placed on the decisions in Sudarsanam Spinning Mills - 2004-TIOL-989-CESTAT-MAD, Gujarat Narmada Fertilizers Co. Ltd. - 2005-TIOL-204-HC-AHM-CX, 2009-TIOL-96-SC-CX. It is also submitted that ' factory' includes any premises wherein manufacturing process connected with production of goods, is being carried out; allegation that the appellant have mis-declared entire hotel as factory does not stands true as it was only after the examination of the appellant's application for registration was the same granted.
The AR stood by the findings of the lower authorities.
The Bench, after considering the rival contentions, extracted and relied on paragraph 13 of the Apex Court ruling in the case of Gujarat Narmada Fertilizers Co. Ltd. - 2009-TIOL-96-SC-CX, wherein it was held as under:-
"13. It may be noted that litigation on interpretation of CENVAT Credit Rules has arisen on account of various conflicting decisions given by the various Benches of CESTAT, the reason being that the Rules have not been properly drafted. In the circumstances, we are of the view that in this batch of cases no penalty is leviable..."
Taking note of the above, the CESTAT held -
"Penalty under Section 11AC of the Central Excise Act, 1944 is imposable when there is any fraud, collusion, suppression or mis-declaration of facts on part of the appellant with intent to evade payment of duty. In the present case, I find that there is no suppression or mis-declaration of facts on part of the appellant with intent to evade payment of duty or to avail ineligible CENVAT Credit. Hence, I set aside the penalty imposed under Section 11AC of the Central Excise Act, 1944 read with Rule 15(2) of Cenvat Credit Rules, 2004 read with Rule 25 of Central Excise Rules, 2002 on the appellant. Since the appellant has reversed the credit wrongly availed on pointing out by the department, I direct the appellant to pay the interest till the date of duty was deposited or CENVAT Credit reversed."
The appeal was partly allowed.
(See 2015-TIOL-1078-CESTAT-MUM)
