If One Unit of a Manufacturing Firm Claims Excessive CENVAT Credit, Credit Claims of Other Unit Cannot Be Denied: CESTAT [Read Order]

Customs Excise & Service Tax Appellate Tribunal( CESTAT ) has held that one unit of a manufacturing firm cannot be denied CENVAT credit due to another unit’s excessive CENVAT credit  claims. The two member bench observed held Unit II cannot be denied CENVAT credit due to the excess CENVAT credit availed by unit I

The assessee,M/s.Indo Shell Cast Pvt. Ltd. is a manufacturer of machined castings and parts for use in automobile industry. In order to achieve high quality precision of the castings, the company imported machinery and established Unit II in July 2005 at Malumichampatti, Coimbatore for manufacture of rough castings and stock transferred to Unit-I situated in SIDCO Industrial Estate, Coimbatore. Unit-II was purchasing raw material, availing CENVAT credit of the duty paid, manufacturing rough castings and stock transferring them under Central Excise invoices to Unit I on payment of duty on 110% of the estimated cost of production in terms of Rule 8 of the Central Excise (Determination of the Price of Excisable Goods) Rules, 2000. Unit-I was availing CENVAT credit of the excise duty paid on rough castings, manufacturing machined castings as per the specifications and clearing them on payment of duty on the transaction value as applicable to the customers.

The assessee contended that they have furnished details of the declared cost of production as well as the actual cost of production and it would show that the excess duty paid on rough castings which are stock transferred to Unit-I is slightly higher than 110% of the estimated cost of production during the disputed period. The authorities below have failed to appreciate that the actual cost of production of the goods for the purpose of Rule 8 of the Valuation Rules, 2000 read with CAS-4 cannot be determined accurately at the time of clearing the goods.

The assessee further argued that the actual cost of production for any particular financial year or period would be arrived at only after finalization of accounts and obtaining costing data for the given period. The assessee argued that the cost of production of goods at the time of their clearance can only be based on the projected cost on the basis of cost of production for the previous period/financial year and other assumptions.

The assessee contended that both the units belonged to the same company with the single balance sheet. The duty paid by Unit-II is eligible as CENVAT credit to Unit-I which carried out manufacture and cleared the machined castings to independent customers on payment of excise duty as applicable. The situation of payment of duty by Unit-II and availment of credit by Unit-I thus leads to revenue-neutral situation. Therefore, in the absence of any deliberate contravention of the Valuation Rules, 2000, there is no justification to impose penalty on Unit-II or paying higher excise duty on the goods cleared from Unit-I which was entitled to avail credit of the duty paid by them

Revenue contended that the value adopted by the appellant for payment of duty when the goods are transferred to Unit-I was not based on 110% value of cost of production arrived at as per CAS-4 statement. This resulted in short payment of duty for some financial years and excess payment of duty for some financial years. The non-adoption of correct assessable value has thus resulted in short payment as well as excess payment of duty. The Unit-I availed credit on such duties. Revenue contended that by paying such excess duty, the assessee has transferred ineligible credit to Unit-I.

The two member bench comprising Sulekha Biwi C.S( Member, Judicial ) and Vasa Seshagiri Rao ( Member, Technical ) held Unit II cannot be denied CENVAT credit due to the excess CENVAT credit availed by unit I. The bench held that “Following the decisions in the appellant’s own case for the period from April 2007 to September 2011, we are of the considered opinion that demand and penalties cannot sustain and requires to be set aside.”

Assessee was represented by M.S.Nagaraja. Revenue was represented by Anoop Singh.

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