Credit Reversal Dispute Based on Interpretation, Not Suppression: CESTAT Denies Extended Period [Read Order]

The Chandigarh Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) held that a difference in interpretation of credit reversal provisions does not amount to suppression of facts and the extended period of limitation could not be invoked.

Pepsico India Holdings Pvt. Ltd., the appellant, is engaged in the manufacture of aerated beverages and mango-based drinks under the brand "Lehar Slice." While aerated beverages were dutiable, "Lehar Slice" was exempt from excise duty until February 2011, after which it attracted concessional duty at 1%.

The appellant availed CENVAT credit on common inputs and input services used for both dutiable and exempted goods, and reversed a proportionate amount of credit based on the quantity of goods produced.

The department issued a show cause notice in May 2013 demanding ₹3.45 crore along with interest and penalty. The department argued that the appellant had not reversed the credit in the manner prescribed under Rule 6(3) of the CENVAT Credit Rules, which requires reversal based on the value of exempted and dutiable goods. The demand covered the period from 2008 to 2012 and was confirmed by the adjudicating authority.

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The appellant’s counsel argued that the company had followed a valid method of reversal based on the actual quantity of inputs used, which was consistent with CBEC Circular No. 868/6/2008-CX.

They also submitted that the credit reversal for earlier years was not required as only certain input services were availed during that time, and they were not linked to exempted goods. The counsel further argued that no suppression or misstatement was involved and that the issue arose from a genuine difference in interpreting the credit reversal provisions.

The revenue's counsel countered that the appellant had wrongly stated in letters to the department that no credit was taken on inputs for exempted goods. The department maintained that this amounted to misstatement and suppression, justifying the extended limitation period under the proviso to Section 11A of the Central Excise Act.

The two-member bench comprising S.S. Garg (Judicial Member) and P. Anjani Kumar (Technical Member) observed that Pepsico had been regularly filing statutory returns and had informed the department of their credit practices through official correspondence.

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The tribunal observed that the department had conducted regular audits and did not question the appellant’s reversal method at the relevant time. The tribunal also observed that the issue involved the interpretation of complex legal provisions and that the appellant’s approach could not be seen as deliberate evasion.

It explained that extended limitation can only be invoked in cases involving fraud, collusion, or willful misstatement, none of which were proven in this case.

The tribunal ruled that the department had ample opportunity to question the appellant's method during earlier audits and failed to do so. It held that the entire demand was barred by limitation and allowed the appeal without examining the merits of the case.

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