CESTAT Mumbai Upholds Demand for Non-Reversal of SAD Credit on Inter-Unit Transfer of Imported Inputs
Background and Overview
The Mumbai Bench of the Customs, Excise and Service Tax Appellate Tribunal recently delivered a significant ruling in the matter of Thermo Fisher Scientific India Pvt. Ltd. Vs Commissioner of CGST & Central Excise (CESTAT Mumbai), dismissing both appeals filed by the assessee against confirmed demands, interest, and equal penalty. The core controversy revolved around the failure to reverse Cenvat credit attributable to the Special Additional Duty (SAD) component while transferring imported inputs "as such" between two manufacturing units of the same entity, as mandated under Rule 3(5) of the Cenvat Credit Rules, 2004.
The case raises critical questions around:
- The scope and invocability of the extended limitation period under
Section 11A(4)of the Central Excise Act - The applicability of the revenue neutrality doctrine in inter-unit transfer scenarios
- The evidentiary standard required to establish willful suppression for purposes of invoking the extended period
- The interplay between
Rule 9(1)(b)of the Cenvat Credit Rules, 2004 and post-audit credit availment
Facts of the Case
The assessee, a manufacturer of panel and apparatus belt converters and related accessories, was regularly availing Cenvat credit on inputs, including imported goods. During the period 25.03.2016 to 31.01.2017, the assessee cleared certain imported inputs "as such" from its factory unit located at Navi Mumbai to another manufacturing unit, covering 18 bills of entry. A second set of transfers was made during June 2016 to January 2017 covering 10 bills of entry.
While making these inter-unit transfers, the assessee duly reversed the Cenvat credit pertaining to Countervailing Duty (CVD) and education cess. However, it omitted to reverse the SAD component, resulting in un-reversed credits amounting to:
- Rs. 4,77,073/- — in respect of the first set of transfers
- Rs. 1,13,366/- — in respect of the second set of transfers
This lapse was brought to light during a Special Audit conducted by the DG Audit team. Upon being notified, the assessee declined to reverse the credit or make payment. It cited limitation as its primary defense, arguing that the normal two-year period under Section 11A(1) of the Central Excise Act had already elapsed, and that Section 11A(4) — which permits invocation of the extended period — could not be applied in the circumstances.
Consequently, show cause cum demand notices were issued invoking Section 11A(4) for recovery of the duty along with applicable interest and penalty. The adjudicating authority confirmed the demands, and the Commissioner (Appeals) upheld the confirmation by rejecting the assessee's appeals. The assessee thereafter approached CESTAT Mumbai, challenging the legality of the Commissioner (Appeals)' order.
Assessee's Contentions Before CESTAT
The learned consultant appearing for the assessee advanced the following submissions: