The Chandigarh Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has ruled that CENVAT credit cannot be denied merely because the supplier unit was availing an area-based excise exemption, holding that there was no express prohibition under the CENVAT Credit Rules, 2004 before the amendment introduced on January 20, 2014. 

The bench of S. S. Garg (Judicial Member) and P. Anjani Kumar (Technical Member) observed that the extended period of limitation could not be invoked in the absence of any evidence of suppression or intent to evade duty by allowing the appeal.

The dispute arose after appellant/assessee availed CENVAT credit on duty-paid inputs purchased from manufacturing units that were operating under the area-based exemption provided by Notification No. 01/2010-CE dated February 6, 2010.

Buy Now: 70+ Judgements Indirect Tax – July 2026 | E-Magazine

The Department contended that, prior to the amendment of Rule 12 of the CENVAT Credit Rules through Notification No. 02/2014-CE (NT), effective from January 20, 2014, there was no legal provision permitting recipients to avail CENVAT credit on inputs supplied by such exempted units.

On this basis, the Department issued a show cause notice dated October 16, 2017, demanding recovery of ₹79.49 lakh under Rule 14 of the CENVAT Credit Rules, 2004, along with interest and penalty. The adjudicating authority confirmed the demand, and the Commissioner (Appeals) upheld the order, prompting the company to approach the Tribunal. 

The appellant argued that entitlement to CENVAT credit is governed primarily by Rules 3 and 4 of the CENVAT Credit Rules, 2004, and not by Rule 12.

It submitted that Rule 12 merely operated in a limited field and did not impose any restriction on availing credit where the statutory conditions under Rule 3 had already been satisfied. According to the appellant, the amendment made in January 2014 was clarificatory in nature and therefore should apply retrospectively rather than being treated as creating a new substantive right.

The company further argued that the Department had repeatedly audited its records, scrutinized its returns, and processed refund claims during the relevant period. Consequently, there was complete disclosure of facts and no suppression or misrepresentation that could justify invocation of the extended limitation period.

It also relied upon several earlier Tribunal decisions supporting the proposition that Rule 12 did not curtail the substantive right to claim CENVAT credit under Rule 3. 

The bench examined the overall framework of the CENVAT Credit Rules instead of interpreting Rule 12 in isolation.

The Tribunal observed that the CENVAT scheme fundamentally allows credit where three essential conditions are fulfilled the inputs or input services have suffered duty; they are used in the manufacture of final products or provision of output services; and the credit is supported by prescribed invoices or documents.

The Bench noted that the Department had not disputed fulfillment of any of these statutory conditions in the present case.

According to the Tribunal, the Revenue’s argument rested solely on the absence of an explicit enabling provision before January 20, 2014. However, it held that the Rules also contained no express prohibition against availing such credit during the relevant period.

The Tribunal emphasized that merely because an express provision recognizing such credit was inserted later could not lead to the conclusion that credit was impermissible before that date. Reading the CENVAT scheme harmoniously, it held that where duty-paid inputs satisfied the prescribed conditions, credit could not be denied solely because the supplier had availed an area-based exemption. 

The Tribunal also rejected the Department’s invocation of the extended limitation period.

It noted that the appellant had been regularly filing statutory returns and paying applicable taxes. The Department had conducted periodic audits and examined the company’s records during the relevant period. It had also processed multiple refund claims, demonstrating that the Department was fully aware of the company’s transactions.

Importantly, the Bench observed that the Revenue failed to produce any evidence establishing an intention on the part of the appellant to evade payment of duty.

The Tribunal further reiterated the settled legal principle that extended limitation generally cannot be invoked where disputes arise from audit findings or involve interpretation of statutory provisions rather than deliberate suppression or fraud.

Accordingly, it held that the demand was barred by limitation as well. 

Allowing the appeal, the CESTAT held that the appellant was entitled to avail CENVAT credit on duty-paid inputs received from manufacturers availing the area-based exemption under Notification No. 01/2010-CE, even for the period prior to the January 20, 2014 amendment.

The Tribunal further held that the extended period of limitation was not available to the Department because there was no evidence of suppression of facts or intent to evade duty.

Consequently, the Tribunal set aside the demand of ₹79.49 lakh along with the associated penalty and allowed the appeal in favour of the assessee.

Membership Required to Access Case Details & Order Copy

To view the complete Case Details and Download Order Copy, you must have an active membership. Please subscribe to continue.

Read More: Ignoring Taxpayer’s Reply While Rejecting GST Refund Is Illegal: Bombay High Court