04 February, 2012

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Cenvat Credit : Procedural irregularity in not registering units with LTU authorities can be rectified to extend benefit of LTU scheme.


Procedural irregularity in not registering units with LTU authorities can be rectified to extend benefit of LTU scheme 



 Rule 12A of the Cenvat Credit Rules, 2004 - Cenvat credit - Procedure and facilities for large taxpayer - Assessee, initially in March 2006, filed its consent to be registered as LTU (Large Taxpayer's unit) in respect of its six units - Assessee was given consent to be administered as an LTU - Subsequent thereto, assessee had set up three more units and was following prescribed procedure for payment of tax and filing returns with proper officer of LTU - Commissioner disallowed Cenvat credit in respect of said three units on ground that said three units were not mentioned in original consent form filed by assessee in March 2006 - Full Text is as Below


HIGH COURT OF BOMBAY
Sharda Motor Industries Ltd.
v.
Union of India*
MRS. MRIDULA BHATKAR AND J.P. DEVADHAR, JJ.
WRIT PETITION NO. 9450 OF 2010
FEBRUARY 17, 2011

Rule 12A of the Cenvat Credit Rules, 2004 - Cenvat credit - Procedure and facilities for large taxpayer - Assessee, initially in March 2006, filed its consent to be registered as LTU (Large Taxpayer's unit) in respect of its six units - Assessee was given consent to be administered as an LTU - Subsequent thereto, assessee had set up three more units and was following prescribed procedure for payment of tax and filing returns with proper officer of LTU - Commissioner disallowed Cenvat credit in respect of said three units on ground that said three units were not mentioned in original consent form filed by assessee in March 2006 - 

However, it was found that since inception, assessee had been filing ER-1 returns in respect of all units including subsequently set up units - Even LTU Delhi had treated that all units of assessee were governed by LTU at Delhi and, in fact, permitted clearances for exports from subsequently set up units - Local excise authorities apart from registering new units had not administered said units on footing that those units were always administered by LTU Delhi - Whether in view of above, though initial consent letter given by assessee related only to six units, both assessee and revenue since inception had proceeded on footing that assessee had opted for LTU facility not only for six units but also in respect of all other units set up subsequent to initial consent letter - Held, yes - Whether, therefore, though there was a procedural flaw on part of assessee, that irregularity was curable in interest of scheme and to refuse benefit of scheme to assessee was a hypertechnical approach - Held yes - Whether action of Chief Commissioner to refuse to accept new units as a part of LTU and issuing show-cause notice to them regarding transfer of Cenvat credit was not tenable under scheme - Held, yes [Paras 9 &10] [In favour of assessee]

FACTS

The assessee had filed its consent for being registered as an LTU on 17-3-2006 in respect of six manufacturing units which were in existence on the date of consent. The Chief Commissioner accepted the consent given by the assessee to be administered as an LTU. Interregnum, the assessee set up three more units at Kanchipuram, Nasik and at Singur. Thus, the assessee as on 2-6-2008, was running nine manufacturing units. The assessee was following prescribed procedure for payment of tax and also filing monthly returns with the proper officers of the LTU in respect of all above nine units. Show-cause notice was issued to the assessee denying Cenvat credit in respect of three units set up subsequently on ground that said three units were not mentioned in original consent form filed by the assessee in March 2006.
On writ petition:

HELD

The assessee admittedly is a LTU and operating its accounts since 2006 for which it has received the acceptance of the respondent. It is not disputed by the assessee that it did not mention the name and the details of three new units which started operating after the submission of the consent letters for its other units. The action of the Chief Commissioner of LTU may appear correct in holding that these three units at Nasik, Kanchipuram and Singur do not form a part of LTU for want of consent letter from the assessee and the acceptance to these three units to operate as a part of LTU; however, the fact of some transactions of all the units and intimation to LTU by the assessee cannot be over looked but has vital bearing over the issue. For instance, earlier the assessee has requested the transfer of the credit from unit at Kanchipuram to other units. So also sought permission of LTU-New Delhi for clearing vehicles containing scrap from Nasik unit. By letter dated 27-3-2009, the assessee informed the Superintendent of Central Excise-LTU-New Delhi that it was transferring Rs.1 lakh and Rs.20 Lakhs between these two industries. The assessee filed letter with the LTU furnishing a copy of original consent with the list of units registered with the Central Excise Authorities. 

The assessee received letter from LTU on 11-9-2009 accepting the undertaking in form no. UT-1 inrespect of Nasik Units in relation to the exports. Further, the assessee has intimated LTU authorities, New Delhi about the transfer of education cess and SHE cess from Nasik No. 112 unit to Nasik plot No. 51 unit. It has also addressed to LTU authorities intimating about the transfer of Cenvat credit from Nasik Plot No. 51 unit. A letter was sent by the Dy. Commissioner of LTU, New Delhi addressed to the assessee unit informing that clearance of export has been accepted by the Dy. Commissioner of Central Excise and Service Tax LTU, New Delhi. [Para 8]

Thus, in the instant case, though the initial consent letter given by the assessee related only to the six units, both the assessee and the revenue since inception have proceeded on the footing that the assessee had opted for the LTU facility not only for the six units but also in respect of all the other units set up subsequent to the initial consent letter. This is evident from the fact that since inception the assessee has been filing ER-1 returns in respect of all the units (including the subsequently set up unit at Nasik) before the LTU at Delhi and even the LTU Delhi has treated that all the units of the assessee are governed by the LTU at Delhi and in fact permitted clearances for exports from the subsequently set up unit at Nasik. It is not in dispute that the local excise authorities apart from registering the new unit, have not administered the said unit on the footing that the unit was always administered by the LTU Delhi. 

It is only when the CBEC opined that specific consent/acceptance letter is necessary, show-cause notice has been issued to the assessee to deny the benefit of LTU to the unit setup after submitting the initial consent letter. It is not the case of the revenue that the subsequently set up units are not eligible to be administered by the LTU. The only grievance is that specific letter of consent has not been submitted in respect of the newly established units till 9-9-2010. Therefore, the lapse, if any, being only technical and the LTU policy itself provides that the Chief Commissioner/Commissioner, LTU must play a proactive role in the administration of LTU and requires them to solve the problem that arises at the initial stage, in the facts of the instant case, all the units must be held to be governed by the LTU scheme since inception. [Para 10]

The argument of the revenue that instant Court has no jurisdiction to entertain the writ petition is also without any merit. The unit in question is situated at Nasik, Maharashtra within the jurisdiction of the instant Court. The said unit was initially administered by the LTU at Delhi and it is only as an afterthought the revenue is contending that the unit in question would not be governed by the LTU scheme for the period where there was no specific approval. If mere forwarding of the consent letter entitles the large taxpayer to avail the benefits of the LTU scheme then the benefits of the LTU cannot be denied where the consent is impliedly given by submitting ER-1 returns regularly. The show-cause notice is issued by the LTU, Delhi to the assessee's unit at Nasik. Thus, in the facts of the instant case, it cannot be said that the instant Court has no jurisdiction to entertain the writ petition filed by the assessee to challenge the show-cause notice issued by the LTU, Delhi to the unit of the assessee setup at Nasik. [Para 11]

In the result, the show-cause notice dated 4-2-2010 is quashed and set aside. The LTU, Delhi is directed to allow the benefit of LTU scheme to all the units of the assessee since inception. [Para 12]

CASES REFERRED TO

Mangalore Chemicals & Fertilizers Ltd. v. Deputy Commissioner of Commercial Taxes 1992 Suppl. (1) SCC 21 (para 6).
V. Sridharan and Prakash Shah for the Petitioner. A.S. Rao and S.D. Bhosale for the Respondent.
JUDGMENT


Mrs. Mridula Bhatkar, J. - Rule, returnable forthwith. By consent of the parties the petition is heard finally at the stage of admission.

2. By way of this Petition the petitioner company seeks direction under Article 226 of the Constitution of India to quash and set aside the letters dated 14/10/2009 and 13/8/2010 as well as show cause notice dated 4/2/2010 issued by the Dy. Commissioner of Central Excise and Service Tax (L.T.U.), respondent no. 5, holding that three manufacturing units and one trading unit of the petitioner located at Nasik, Kanchipuram and Singur are not covered under Large Taxpayer's Unit (for short LTU) scheme. The petitioner further seeks declaration that these three units and the trading units of the petitioner are covered by LTU.

3. Before dealing with the submissions of learned counsel of both the sides it is necessary to state in brief the scheme of LTU which was introduced in India in the year 2006. LTU is a facility made available by the Government to facilitate the trade and to boost the industrial development. Concept of LTU is not novel to the international practice. Our Finance Minister in his speech on budget proposal of 2005-2006 announced establishment of LTU so that the industries and corporate sector may avail of single window service and such LTU would be set up in major cities. Inter alia the State issued notifications no. 18/06 (CE)/(NT)2, 22/006 CE(NT) and 28/2006 S. Tax all dated 30/9/2006 providing jurisdictional authority for LTU and made changes in the Central Excise Rules, 2002 Cenvat Rules, 2004 and Service Tax Rules, 1994. A new rule 12(b)(b) has been added in the Central Excise Rules, 2002, a Rule 12A was inserted in Cenvat Credit Rules, 2004 and similarly Rule 10 has been inserted in Service Tax Rules, 1994. On 3/10/2006 first LTU was set up at Bangalore.

4. As per the notification no.20/2006 CE (NT), dated 30/9/2006 it was mandatory for the person applying for LTU must pay the duties of excise more than five crores in cash in the previous year and that has been accepted by LTU authorities in June, 2008. In order to avail of LTU facility it was necessary for the unit to fill up the consent form to the Chief Commissioner LTU and if found eligible then the Chief Commissioner, LTU to issue an acceptance letter. Such process of acceptance would not normally take more than seven days. The scheme is a benevolent amendment leading to increase satisfaction amongst the taxpayer by reducing their complaint and transaction cost and bringing more efficiency in tax administration. Therefore, it is expected from the Chief Commissioner, LTU to play a practical role in the administration of LTU.

5. In the present case the petitioner filed its consent for being registered as an LTU on 17/3/2006 and supplied all the six manufacturing units which were in existence on the date of consent. The Chief Commissioner of Central Excise, LTU by letter No. CC/LTU/2008-2009/19, dated 11/6/2008 sent a letter of acceptance of the consent given by the petitioner to be administered as an LTU Delhi. No further information was called by the Chief Commissioner of Central Excise and without ascertaining the then existing status of the working units of the petitioner unconditional acceptance was given. Interregnum the petitioner set up more units at Kanchipuram in the State of Tamil Nadu, Nasik in the State of Maharashtra and at Singur, in the State of West Bengal. Thus, the petitioner as on 2/6/2008 was running nine manufacturing units and one trading unit, all registered with the respective jurisdictional central excise authorities. The manufacturing unit behind CEAT company at Satpur, Nasik Industrial Estate had already been functioning. It was understood that all the manufacturing and trading units came under LTU as a single entity. The petitioner was following prescribed procedure for payment of tax and also file monthly returns with the proper officers of the LTU. On 14/10/2009 the petitioner received letter from Chief Commissioner LTU, Delhi regarding three manufacturing units and one trading unit which came into existence of which the details were not furnished by the petitioner and they were not registered. The Commissioner of Central Excise, LTU by way of show cause notice dated 17/12/2009 sought to disallow the total credit on the ground that the unit at Kanchipuram and Nasik were not mentioned in the original consent form filed by the petitioner in March, 2006 and therefore, they are not part of the LTU. Further it was communicated by letter dated 7/1/2010 by the Chief Commissioner, LTU that the facility of transfer of credit is effective only after the receipt of the letter by the assessee of the consent and the transfer of credit of the assessee on 27/11/2008 was incorrect. Nasik unit of the petitioner was also served by show cause notice on 4/2/2010 by which the Commissioner sought to disallow Cenvat credit amounting to Rs. 1.73 crores which was availed during the period from January, 2009. The petitioner filed detailed reply to the show cause notice in April, 2010 contending that Kanchipuram and Nasik units after March, 2006 should be treated as a part of LTU and, therefore, Cenvat credit was properly transferred. However, on 13/8/2010 LTU sent a letter stating that Nasik unit does not fall under the jurisdiction of LTU Delhi and E.R. returns filed by Nasik Unit from September, 2009 to July, 2010 were forwarded to the Dy. Commissioner of Central Excise, Nasik. The petitioner filed petition on 9/9/2010 before the Commissioner of Central Excise, LTU seeking an order to include the units at Nasik and Kanchipuram under LTU with immediate effect and also filed this petition.

6. Learned counsel Mr. Shridharan appearing for the petitioner submitted that from CBEC web site he procured information about the function, structure and procedure of LTU. In Asia 13 countries have established LTU at different points of time and those LTUs have achieved good success as it increased satisfaction amongst the taxpayers. Learned counsel pointed out that the petitioner has satisfied the major condition of the notification that the petitioner had paid the duties of excise of more than Rs. 5 crores in cash in the previous year therefore, the petitioner was found eligible to be accepted as a part of LTU. He argued that the respondents have given the acceptance on 11/6/2006 to the consent letter dated 17/3/2006. Though the details of the new units which started functioning in between the submission of the consent and the acceptance, were not included in the consent letter; were not suppressed. He submitted that the LTU authorities were corresponding with the units periodically for various information and thus, these new units were treated as a part of LTU. Learned counsel further submitted that the new units were also registered with their jurisdictional authorities, but these new units should be deemed to be a part of LTU from the original date of acceptance. He argued that refusing new units to be a part of LTU is a mere technicality and the Chief Commissioner of LTU ought to have used his discretion in favour of the petitioner in view of the object for which the facility is provided. To support his contentions he relied on the judgment of the Supreme Court in Mangalore Chemicals & Fertilizers Ltd. v. Deputy Commissioner of Commercial Taxes, 1992 Suppl. (1) SCC 21.

7. Mr. Rao, learned counsel appearing for the respondents in reply submitted that the petitioners have failed in supplying all the details about opening of new units at Nasik, Kanchipuram, Singur. It was necessary for the petitioner to communicate the details about working of these three units to the Chief Commissioner of LTU. The consent was obtained for seven units and therefore, the acceptance was also given for those units which were mentioned in the consent letter. The names and the details of these three units were not mentioned and furnished to the Chief Commissioner of LTU so the respondents have taken a correct decision as not to recognize these three units as a part of LTU and therefore, the action of the respondent is justified.

8. The petitioner admittedly is a LTU and operating its accounts since 2006 for which petitioner has received the acceptance of the respondent. It is not disputed by the petitioner that the petitioner did not mention the name and the details of three new units which started operating after the submission of the consent letters for its other units. The action of the Chief Commissioner of LTU may appear correct in holding that these three units at Nasik, Kanchipuram and Singur do not form a part of LTU for want of consent letter from the petitioner and the acceptance to these three units to operate as a part of LTU; however, the fact of some transactions of all the units and intimation to LTU by the petitioner cannot be over looked but has vital bearing over the issue. For instance earlier the petitioner has requested the transfer of the credit from Kanchipuram to other units. So also sought permission of LTU, New Delhi for clearing vehicles containing scrap from Nasik unit. By letter dated 27/3/2009 the petitioner informed the Superintendent of Central Excise, LTU, New Delhi that they were transferring Rs. 1 lac and Rs. 20 Lacs between these two industries from Sharda Motor Nasik Industrial Plot No. 112, MIDC to their other plant at plot no. 51 at Nasik which was behind CEAT company, Satpur, Nasik Industrial Estate by two letters dated 27/2/2009. The petitioner filed letter with the LTU furnishing a copy of original consent with the list of units registered with the Central Excise Authorities. The petitioner received letter from LTU on 11/9/2009 accepting the undertaking in form no. UT-1 in respect of Nasik Units in relation to the exports. Further the petitioner has intimated LTU authorities, New Delhi about the transfer of education cess and SHE cess from Nasik plot no.112 unit to Nasik plot no.51 unit. It has also addressed to LTU authorities intimating about the transfer of Cenvat credit from Nasik Plot no. 51 unit. A letter was sent by the Dy. Commissioner of LTU, New Delhi dated 11/9/2009 is addressed to the petitioner unit at Survey no. 52/1 behind CEAT company, Nasik Unit informing that the letter of undertaking furnished by the unit in terms of notification for covering clearance of export has been accepted by the Dy. Commissioner of Central Excise and Service Tax LTU, New Delhi.

9. Thus, the petitioner has intimated about the new units and the acceptance letter by the respondent in respect of Nasik unit puts the petitioner on a stronger footing. Once the respondent has accepted such communication and transaction of new units then the department cannot somersault and say that the revenue department was not aware of functioning of three new units of the petitioner, who is enjoying the facility of LTU for other units. It is made amply clear that the petitioner should have sent a separate consent letter of intimation about functioning of three units and should have obtained additional acceptance for these three new units to form a part of LTU. However, this is not an illegality so as to refuse the facility of LTU to the petitioners for new three units. Opening of three units appears to be a continuous process of the development of the business of the petitioner and LTU facility is made available in India as referred in the speech of the Finance Minister in the year 2005 as a benevolent scheme. Therefore, though there is a procedural flaw on the part of the petitioners this irregularity is curable in the interest of the scheme and to refuse the benefit of the scheme to the petitioner is a hypertechnical approach. We are of the opinion that the action of the Chief Commissioner to refuse to accept new units as a part of LTU and issuing show cause notice to them regarding transfer of Cenvat credit is not tenable under the scheme.

10. Thus, in the present case, though the initial consent letter given by the petitioner related only to the six units, both the petitioner and the revenue since inception have proceeded on the footing that the petitioner had opted for the LTU facility not only for the six units but also in respect of all the other units set up subsequent to the initial consent letter. This is evident from the fact that since inception the petitioner has been filing ER-1 returns in respect of all the units (including the subsequently set up unit at Nashik) before the LTU at Delhi and even the LTU Delhi has treated that all the units of the petitioner are governed by the LTU at Delhi and in fact permitted clearances for exports from the subsequently set up unit at Nashik. It is not in dispute that the local excise authorities apart from registering the new unit at Nashik have not administered the said unit on the footing that the unit was always administered by the LTU Delhi. It is only when the CBEC opined that specific consent/acceptance letter is necessary, show cause notice has been issued to the petitioner to deny the benefit of LTU to the unit set up after submitting the initial consent letter. It is not the case of the revenue that the subsequently set up units are not eligible to be administered by the LTU. The only grievance is that specific letter of consent has not been submitted in respect of the newly established units till 9/9/2010. In our opinion, the lapse, if any, being only technical and the LTU policy itself provides that the Chief Commissioner/Commissioner, LTU must play a proactive role in the administration of LTU and requires them to solve the problem that arises at the initial stage, in the facts of the present case all the units must be held to be governed by the LTU scheme since inception.

11. The argument of the revenue that this Court has no jurisdiction to entertain the Writ Petition is also without any merit. The unit in question is situated at Nashik, Maharashtra within the jurisdiction of this Court. The said unit was initially administered by the LTU at Delhi and it is only as an afterthought the revenue is contending that the unit in question would not be governed by the LTU scheme for the period where there was no specific approval. If mere forwarding of the consent letter entitles the large tax payer to avail the benefits of the LTU scheme then the benefits of the LTU cannot be denied where the consent is impliedly given by submitting ER-1 returns regularly. The show cause notice is issued by the LTU, Delhi to the petitioner's unit at Nashik. Thus, in the facts of the present case, it cannot be said that this Court has no jurisdiction to entertain the Writ Petition filed by the petitioner to challenge the show cause notice issued by the LTU, Delhi to the unit of the petitioner set up at Nashik.

12. In the result, the show cause notice dated 4/2/2010 is quashed and set aside. The LTU, Delhi is directed to allow the benefit of LTU scheme to all the units of the petitioner since inception. Rule is made absolute in the above terms with no order as to costs.
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*In favour of assessee.



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