CENVAT Credit On Supplementary Invoices Allowed Where Additional Duty Did Not Arise From Suppression: CESTAT

CENVAT Credit On Supplementary Invoices Allowed Where Additional Duty Did Not Arise From Suppression: CESTAT

Introduction

The Customs, Excise and Service Tax Appellate Tribunal (Kolkata Bench) has held that CENVAT credit cannot be denied merely because it is availed on the basis of supplementary invoices, where the additional duty arose from an interpretational dispute rather than suppression, fraud, or wilful misstatement. The Tribunal allowed the appeal filed by Agrasen Sponge Pvt. Ltd. and set aside the order of the Commissioner (Appeals), Bhubaneswar, which had upheld denial of CENVAT credit amounting to ₹23.36 lakh for the period April 2016 to March 2017.

Factual Background

Agrasen Sponge Pvt. Ltd. availed CENVAT credit on supplementary invoices issued by Mahanadi Coalfields Ltd. after the latter paid differential excise duty retrospectively. The additional duty liability arose following judicial clarification that royalty paid on coal mining was required to be included in the assessable value of coal.

The appellant availed credit based on these supplementary invoices and duly reflected the transactions in its statutory returns. The Department, however, alleged that the supplementary invoices were issued after detection of suppression relating to the non-inclusion of royalty in the assessable value and therefore Rule 9(1)(b) of the CENVAT Credit Rules, 2004 barred availment of credit.

Procedural Background

The adjudicating authority denied the CENVAT credit and confirmed the demand, which was subsequently upheld by the Commissioner (Appeals), Bhubaneswar. Aggrieved by the denial of credit, the appellant approached the Tribunal challenging the findings and the application of Rule 9(1)(b) of the CENVAT Credit Rules.

Issues

1. Whether CENVAT credit can be denied on supplementary invoices issued after payment of differential duty by the supplier.

2. Whether Rule 9(1)(b) of the CENVAT Credit Rules applies where the additional duty arises from an interpretational dispute rather than suppression or fraud.

3. Whether the Department established suppression or wilful misstatement by the supplier to justify denial of credit.

Contentions of the Parties

The Department contended that the supplementary invoices were issued after detection of suppression by the supplier relating to non-inclusion of royalty in the assessable value of coal. It argued that under Rule 9(1)(b) of the CENVAT Credit Rules, credit cannot be availed on supplementary invoices issued in respect of recoverable duty amounts arising from suppression, fraud or wilful misstatement.

The appellant argued that there was no dispute regarding receipt of coal or payment of duty by Mahanadi Coalfields Ltd. It contended that the issue of including royalty in the assessable value was a long-standing interpretational dispute which was settled only after judicial pronouncement. According to the appellant, once the legal position became clear, MCL paid the differential duty and issued supplementary invoices, and therefore the case did not involve suppression or fraud.

Reasoning and Analysis

The Tribunal examined Rule 9(1)(b) of the CENVAT Credit Rules, 2004 and observed that the provision bars availment of credit on supplementary invoices only where the additional duty arises from suppression, fraud or wilful misstatement on the part of the supplier.

The Bench noted that the show cause notice did not contain any concrete evidence establishing suppression or fraud by Mahanadi Coalfields Ltd. It further observed that the Department failed to demonstrate that the supplementary invoices pertained to recoverable duty arising from such suppression, as required under the rule. The Tribunal also recognised that the dispute concerning inclusion of royalty in the assessable value of coal was a long-standing interpretational issue that attained finality only after judicial pronouncement. In such circumstances, the payment of differential duty could not be characterised as a consequence of deliberate suppression.

The Bench further noted that the appellant had properly recorded the transactions in its ER-1 returns and there was no material suggesting intent to evade duty. It held that mere allegations without supporting evidence were insufficient to deny credit under Rule 9(1)(b).

Decision

The Tribunal held that the bar under Rule 9(1)(b) of the CENVAT Credit Rules was not applicable in the present case and that the denial of CENVAT credit was unsustainable. Accordingly, it quashed the confirmed demand and allowed the appeal filed by Agrasen Sponge Pvt. Ltd.

In this case the appellant was represented by Ms. Ritika Kurmy, Advocate.