Revenue Neutrality Not Applicable To Non-Reversal Of SAD Credit In Inter-Unit Transfers: CESTAT Mumbai

The Mumbai Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), on 5 May upheld the demand of duty, interest and penalty against Thermo Fisher Scientific India Pvt. Ltd. for failure to reverse the Special Additional Duty (SAD) component of CENVAT credit while transferring inputs “as such” between its units, holding that the plea of revenue neutrality is not applicable in such cases.

A Bench comprising Judicial Member Dr. Suvendu Kumar Pati observed that the assessee's conduct reflected conscious non-compliance and rejected the plea of revenue neutrality. The Tribunal reproduced the Supreme Court's observation in Star Industries:

“If the exercise is Revenue neutral, then there was no need even to file the appeal… it is always open to the assessee to claim such a credit.”

The dispute arose over whether the appellant was required to reverse the SAD component of CENVAT credit under Rule 3(5) of the CENVAT Credit Rules, 2004 when it transferred inputs “as such” from one unit to another, and whether authorities could invoke the extended period of limitation on the ground of suppression.

The appellant, a manufacturer, transferred imported inputs between its units during the relevant period but reversed only the CVD and education cess components, not the SAD component. A special audit detected this omission, after which the department issued a show cause notice invoking the extended period under Section 11A(4) of the Central Excise Act, 1944.

The adjudicating authority confirmed the demand along with interest and equal penalty, and the Commissioner (Appeals) upheld the order. The appellant challenged the findings before the Tribunal, claiming the omission was a bona fide error, there was no intent to evade duty, and the situation remained revenue neutral since credit would be available at the receiving unit.

The Department argued that the appellant failed to disclose the non-reversal in ER-1 returns and that this constituted wilful suppression. It further contended that revenue neutrality could not apply because no actual reversal of duty had taken place to enable corresponding credit.

The Tribunal noted that the appellant admitted the requirement of reversal but failed to comply even after detection, instead taking a limitation-based defence. It held that once the extended period is validly invoked on grounds of suppression, the benefit of credit stands negated under Rule 9(1)(b), thereby undermining the plea of revenue neutrality.

It further observed that the possibility of availing credit at another unit no longer existed at the stage of proceedings, making the argument of neutrality factually unsustainable. The Tribunal also found suppression evident from non-disclosure in statutory returns and continued non-reversal despite being pointed out.

Accordingly, the CESTAT dismissed the appeals and affirmed the order of the Commissioner (Appeals).

Appearance for the Appellant: Shri Mohan V. Paranjape, Consultant

Appearance for the Respondent: Shri Rajiv Ranjan, Assistant Commissioner, Authorized Representative