The Delhi Bench of Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has quashed the Show Cause Notice (SCN) issued by the Central Excise Department quoting an old and non-existent rule.
The bench of Justice Dilip Gupta (President) and P. V. Subba Rao, (Technical Member) has observed that it was incumbent upon the Commissioner to have given the appellant an opportunity to defend its case as per the new Rule. When he received the written submissions in 2021 and fixed the personal hearing in 2023, he must have been well aware of the Rule position. There is no conceivable reason for him to conceal this from the appellant and spring it up in his discussions.
The appellant/assessee is a manufacturer of Steel Blooms, Billets, Slabs, TMT Bars, Plates, Angles, Joists, Channels, etc. which fall under Chapters 72 and 73 of the Schedule to the Central Excise Tariff Act, 1985. During the relevant period, it availed MODVAT credit on the inputs and capital goods which it procured under the erstwhile Central Excise Rules, 1944. Of the goods on which it had availed Capital Goods MODVAT credit were also parts of bins supplied by M/s. Simplex Engineering and Foundry Works, which Simplex had classified under Tariff Sub-Heading 8474 90.
Officers of the Directorate General of Central Excise Intelligence investigated the matter and found that the goods were mis-classified by Simplex under Tariff Sub-Heading 8474 90 and they were correctly classifiable under Tariff Sub-Heading 7308 90. They also found that if they were classified under 7308 90, the appellant would not have been able to take capital goods MODVAT credit.
The DGCEI issued a Show Cause Notice to Simplex and to the assessee. It was proposed in the SCN to reclassify the bins under 7308 90 and recover from Simplex the differential duty under section 11A of the Central Excise Act, 1944 along with interest under section 11AB and impose a penalty equal to the duty.
The SCN proposed to deny capital goods MODVAT credit amounting to Rs. 1,08,88,166 and recover it from the appellant under Rule 57U(2) of the Central Excise Rules along with interest under Rule 57U(8) and impose a penalty of equal amount under Rule 57U(6) read with Rule 173Q.
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These proposals were initially confirmed by the Commissioner.
Both Simplex and the assessee appealed before this Tribunal. The appeal of Simplex was allowed by this Tribunal by Final Order dated 18.8.2015 on limitation as there were no grounds to invoke extended period of limitation.
The appellant is a public sector undertaking and as per the directions of the Supreme Court during the period, it had to obtain a clearance from the Committee of Disputes (COD). The appellant filed an appeal on 18.7.2006 but assailed only the penalty. The appeal was dismissed by this Tribunal by order with liberty to seek its revival after obtaining the approval of COD.
The appeal was restored on 31.3.2016 but the appellant was allowed to pursue only the challenge to the penalty under Rule 57U(6). By order dated 6.6.2016, the penalty on the appellant was set aside but not the denial of MODVAT.
The assessee contended that confirmation of demand under new Rule 57AH is beyond the scope of the SCN. Since the department had not appealed against the CESTAT’s order, it attained finality and all that the Commissioner had to do was recomputed the demand. The department could not have reopened the assessment.
Since 57U did not apply to the case, the Commissioner proceeded to examine the question of limitation under Rule 57AH. Unlike Rule 57U which provided for a limitation of only 6 months, 57AH provided for a limitation of one year. Since half of the total credit taken fell within one year- the limitation under Rule 57AH he confirmed denial of MODVAT credit of Rs. 54,44,083.
The tribunal remarked that the Show Cuse Notice was issued under Rule 57U and not under Rule 57AH. Rule 57U was omitted by the time the SCN was issued. The issue was never argued at any stage by either side nor had this Tribunal examined if Rule 57U existed at all while passing the final order remanding the matter to the Commissioner. Everyone including this Tribunal proceeded on the presumption that it had existed at that time.
The tribunal noted that the new Rule 57AH increased the time limit from 6 months to one year and therefore, the liability of the appellant was increased in the impugned order behind the appellant’s back without ever giving the appellant even an opportunity to defend itself.
The CESTAT concluded that the SCN was issued under Rule 57U which was not existing at that time and the appellant was never given an opportunity defend against or were even put to notice that their case will be examined under a new Rule 57AH which increased their liability.
The tribunal while allowing the appeal of the assessee set aside the order denying MODVAT credit.
Case Details
Case Title: Steel Authority Of India Ltd. Versus Commissioner Of Central Excise & CGST
Citation: Final Order No. 58103 /2024
Decision date: 29/08/2024
