The Commissioner, Customs And Central Excise vs. M/S. Bharat Heavy Electricals Limited

Held

The High Court held that the CESTAT's finding regarding the non-invocation of the extended period of limitation was correct and did not warrant interference. The Court reasoned that the definition of 'exempted service' and the retrospective or prospective application of its explanation were highly contentious issues during the relevant period, with divergent views from judicial forums. This fluid state of law meant that the respondent could not be accused of suppression, fraud, or wilful misstatement, which are prerequisites for invoking the extended period. The Court relied on Supreme Court judgments in Commissioner of Central Excise, Indore v. Reymond Ltd., Commissioner of Central Excise, Hyderabad v. Chemphar Drugs & Liniment, Sanjay Industrial Corporation and Another v. Commissioner of Central Excise, Mumbai, Pushpam Pharmaceuticals Company v. Collector of Central Excise, Bombay, and Commissioner of Central Excise, Aurangabad v. Bajaj Auto Limited and Others. These judgments emphasize that the extended period can only be invoked for deliberate acts of fraud, collusion, wilful misstatement, or suppression with the intent to evade duty. The Court found no such positive or deliberate act on the part of the respondent. Therefore, the appeal filed by the Revenue was dismissed.

Facts

The Revenue, as the appellant, challenged an order by the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) that set aside an Order-in-Original. The respondent, Bharat Heavy Electricals Limited (BHEL), a public sector undertaking, manufactures excisable goods and also trades in bought-out goods. BHEL availed Cenvat credit on common input services used for both taxable manufacturing and exempted trading activities. A show cause notice was issued for the period April 2007 to March 2012, alleging non-compliance with Rule 6(3) of the Cenvat Credit Rules, 2004, by not paying the amount equivalent to the credit attributable to exempted services. The adjudicating authority confirmed the demand, invoking the extended period of limitation. The CESTAT, however, held that the extended period could not be invoked and remanded the matter for the normal period.

Key Issues

1. Whether the activity of 'trading' constituted an 'exempted service' under Rule 2(e) of the Cenvat Credit Rules, 2004, prior to the amendment effective April 1, 2011, for the purpose of Rule 6(3)? 2. Whether the amendment to Rule 2(e) of the Cenvat Credit Rules, 2004, by Finance Act, 2011, effective April 1, 2011, which explicitly included 'trading', was clarificatory and retrospective, or prospective in nature? 3. Whether the extended period of limitation under Section 11A of the Central Excise Act, 1944, could be invoked against the respondent for the period April 2007 to March 2012, given the contentious nature of the definition of 'exempted service' and the potential for bona fide interpretation? Petitioner's Arguments (Revenue): The Revenue contended that the amendment to Rule 2(e) including 'trading' was clarificatory, implying it should have retrospective effect. They argued that the respondent had not diligently complied with Rule 6(3) and that suppression or wilful misstatement could be inferred, justifying the invocation of the extended period of limitation. Respondent's Arguments (BHEL): BHEL argued that prior to April 1, 2011, 'trading' was not an 'exempted service' as per the definition in Rule 2(e). They contended that the amendment was substantial and prospective, and that the issue was highly contentious with divergent views from various forums. Therefore, the extended period of limitation could not be invoked due to a lack of suppression, fraud, or wilful misstatement, especially since an audit had been conducted in 2010.