CESTAT allows Suo-Moto Re-Credit of Cenvat Credit without Refund Procedure u/s 11B, quashes Order, Penalty and Interest [Read Order]

The Customs, Excise & Service Tax Appellate Tribunal (CESTAT), Chennai Bench, comprising Judicial Member Ajayan T V, has allowed the appeal of M/s. Polyhose India (Rubber) Pvt. Ltd. and set aside a demand of ₹40.64 lakh along with penalties, holding that suo-moto re-credit of Cenvat credit, once legitimately available, cannot be denied merely for not following the refund procedure under Section 11B of the Central Excise Act, 1944.

The appellant, a 100% Export Oriented Unit engaged in manufacturing and exporting rubber hose products, had taken Cenvat credit of ₹72.60 lakh in June 2009 for service tax paid on erection services provided by M/s. Kirby Building Systems India Ltd. for expansion of its unit. Subsequently, on instructions from departmental officers, the appellant reversed the credit while intimating that it would be re-availed after completion of construction. Later, it re-credited ₹40.64 lakh proportionately, corresponding to its manufacturing area, and duly reflected the same in its ER-2 returns.

The department issued a show-cause notice alleging that there is no provision allowing suo-moto re-credit and that refund must be claimed only through Section 11B. The adjudicating authority confirmed the demand with equivalent penalty under Section 11AC and an additional ₹1,000 penalty under Rule 15(3) of the Cenvat Credit Rules, 2004. The Commissioner (Appeals) upheld the decision, prompting the present appeal before the Tribunal.

Counsel for the appellant, Shri M. Karthikeyan, argued that the credit was lawfully available under Rule 4(7) of the Cenvat Credit Rules, as payment had been made for eligible input services, and the initial reversal was only due to a mistaken departmental interpretation. He emphasized that there was no revenue loss and that the appellant had informed the authorities of its intent to re-avail the credit upon completion of construction.

The Tribunal noted that the department never disputed the appellant’s eligibility to claim the credit, and that the reversal and re-credit were merely accounting entries. Citing ICMC Corporation Ltd. v. CCE [2014], and similar precedents including Hwashin Automotive India Pvt. Ltd. [2020] and PepsiCo India Holdings Pvt. Ltd. [2018], the Bench reaffirmed that suo-moto re-credit of reversed credit is permissible when the entitlement is undisputed and no refund of money from the exchequer is involved.

The Tribunal further held that since the department was aware of the appellant’s intention to re-avail credit and the entries were disclosed in returns, there was no suppression or wilful misstatement. Consequently, invocation of the extended period of limitation was unjustified, and the demand was barred under Section 11A of the Central Excise Act.

Concluding, the Bench held that both the demand and the penalties were unsustainable and allowed the appeal in full, granting consequential reliefs in accordance with law.

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