No Bar On CENVAT Credit Where Supplementary Invoice Is Not Linked To Suppression: CESTAT Kolkata

The Kolkata Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) on 13 February, allowed an appeal by Agrasen Sponge Pvt. Ltd., holding that CENVAT credit claimed on the basis of supplementary invoices issued by Mahanadi Coalfields Ltd. (MCL) is admissible where the additional duty arose due to an interpretational dispute and not on account of suppression or fraud.

A Bench comprising Judicial Member R. Muralidhar set aside the order of the Commissioner (Appeals), Bhubaneswar, which had upheld the denial of CENVAT credit amounting to Rs. 23.36 lakh availed by the appellant during April 2016 to March 2017.

The Tribunal noted:

“The exclusion specified under Rule 9(1)(b) of Cenvat Credit Rules, 2004 is clear to the effect that only when the supplementary invoices raised in respect of 'recoverable duty amount' on account of suppression etc. on the part of the vendor, the Cenvat credit can be denied. In the present case no such factual details have been brought in by the Revenue. On this ground itself I hold that the provisions of Rule 9(1)(b) will not be applicable and hence the confirmed demand is not sustainable.”

The credit was taken on supplementary invoices issued by MCL after it paid excise duty retrospectively, following judicial clarity that royalty paid on coal mining was required to be included in the assessable value. The department contended that the supplementary invoices were issued after detection of suppression relating to non-inclusion of royalty, and therefore, Rule 9(1)(b) of the CENVAT Credit Rules, 2004 barred the availment of credit.

The appellant argued that there was no dispute regarding receipt of coal or payment of duty by MCL and that the question of including royalty in assessable value was a matter of prolonged litigation before the Supreme Court of India. According to the appellant, once the legal position was settled, MCL discharged the differential duty and issued supplementary invoices, making the case purely one of interpretation and not suppression.

The Tribunal observed that the show cause notice “did not contain any concrete evidence to establish suppression or fraud on the part of MCL, nor did it demonstrate that the supplementary invoices pertained to 'recoverable duty' arising out of such suppression, as required under Rule 9(1)(b) of Cenvat Credit Rules, 2004”. The bench further held that mere allegation, without supporting material, was insufficient to deny credit.

It further held that the dispute regarding inclusion of royalty in the assessable value of coal was a long-standing interpretational issue which attained finality only after judicial pronouncement, and therefore could not be treated as a case of deliberate suppression. The bench stated:

“........there is no suppression on their part when they have taken the Cenvat Credit based on the supplementary invoices issued by MCL. The Appellant has properly recorded the details in their ER-1 Returns. Therefore, allegation of suppression with intent to evade payment of Excise Duty cannot be sustained.”

Accordingly, the Tribunal quashed the confirmed demand and allowed the appeal.

For Appellant: Advocate, Ritika Kurmy

For Respondent: Authorized Representative, D.Sue