1. 100% EOU is entitled to benefit of refund of Cenvat Credit under rule 5 of Cenvat Credit Rules, even if the final products are exempted

Facts

The respondent is a 100% Export Oriented Unit (‘EOU’ for short) engaged in the manufacture of parts of agricultural and farm equipment which are chargeable to ‘Nil’ rate of duty under Central Excise Tariff Act, 1985 (Tariff Act). The respondent filed three refund claims with the Assistant Commissioner of Customs, Bengaluru under Rule 5 of the Cenvat Credit Rules, 2004, being the unutilised credit availed by the respondent in respect of certain inputs used in the manufacture and export of their final product. The said refund claims were, however, rejected by the Assistant Commissioner, Customs, on the ground that the respondent was not eligible for the availment and utilisation of Cenvat Credit Rules, 2004, as their final product was not chargeable to any duty under the Tariff Act. It was, further, held that Rule 6(6) of the Cenvat Credit Rules, 2004 exempting a unit from proportionate reversal of Cenvat credit on clearance of exempted goods when exported under bond without payment of duty, could not be extended to the respondent, as the exports made by EOU were not covered under the Rule. Being aggrieved by the same, the respondent filed an appeal before the Commissioner of Customs (Appeals) who set aside the Order of the Assistant Commissioner, Customs. The appeal filed by the Revenue against the order of Commissioner (Appeals) before the Tribunal was also dismissed based on an earlier judgment on an identical issue. Hence, the revenue is in appeal before the CESTAT.

Held

High Court rejected the appeal of the revenue primarily on the ground that the Tribunal has dismissed the revenue’s appeal based on the reasoning of its earlier order on an identical issue, the appeal against which was dismissed by this very High Court. As there was nothing on record to show that the revenue has filed an appeal against this order of High Court before the Apex Court and/or the Apex Court has stayed the operation of earlier order in any manner, the earlier order has attained finality and the issue is no longer res integra between the parties.

Authority

Commissioner of Customs, Bengaluru vs. ANZ International – 2009 (243) E.L.T. 40 (Kar-HC)

2. Cenvat credit on common inputs eligible only in terms of rule 6 when excisable & exempted products are manufactured. Credit can be availed only in terms of rule 6(3) and reversal of pro rata credit not permissible. Judgment of Chandrapur Magnet distinguished by Hon’ble Bombay High Court

Facts

The respondents are engaged in the manufacture of Vitamin A falling under Chapter Heading 29.36 and animal food supplement falling under Chapter Heading 23.02 of the Schedule to the Central Excise Tariff Act, 1985. Vitamin A is liable to Central Excise Duty. Animal food supplement is not liable for payment of Central Excise Duty since Heading 23.02 attracts nil rate of duty. The Cenvat credit on common inputs utilized in manufacture of aforesaid final products was availed by the respondent during the period of dispute. At the time of clearance of exempted finished goods (i.e. Animal food supplement), the proportionate credit relating to inputs utilized in manufacture of the said exempted final products was reversed. However, Revenue issued a show cause notice demanding 8% of the value of the exempted final products in terms of Rule 57CC(1) of the Central Excise Rules, 1944/Rule 6(3)(b) of the Cenvat Credit Rules, 2004. The said notice was adjudicated and the same was confirmed by the Commissioner. In an appeal before the Tribunal, the matter was allowed on majority by the larger bench. Revenue is in appeal before the Hon’ble High Court against this order of the Tribunal.

Held

The Bombay High Court agreed with the position adopted by the revenue and held that in absence of any provision allowing proportionate reversal of credit availed in respect of common inputs in Rule 57CC of the Central Excise Rules, 1944 or Rule 6 of Cenvat Credit Rules 2004, It would be imperative on the respondent to pay an amount equal to 8% of the value of exempted final products in terms of Rule 57CC(1) of the Central Excise Rules, 1944/Rule 6(3)(b) of Cenvat Credit Rules, 2004, in the event the respondent did not opt to maintain separate accounts in respect of inputs utilized in manufacture of exempted final products. The Bombay High Court strictly interpreted Rule 57CC of the Central Excise Rules, 1944/Rule 6 of Cenvat Credit Rules, 2004 to hold that a mere reversal of proportionate credit would not comply with the requirements of aforesaid Rule.

Authority

Commissioner of Central Excise, Thane-I V. Nicholas Piramal (India) Ltd. – 2009 (244) ELT 321 (Bom HC)

3. Reversal of Cenvat Credit in the event of reduction of price after the supply of goods

Facts

Appellant is engaged in the manufacture of motorcycle, auto rickshaw, etc. and are availing Cenvat credit on the inputs received in its factory. The inputs are supplied by various independent suppliers under contracts backed by the purchase orders for agreed prices. Appellant availed credit on these inputs based on proper duty paying documents. However, subsequent to the supplies, there was a retrospective reduction in the prices of such inputs. Revenue therefore sought to deny the credit proportionate to the subsequent extinction in prices of inputs. On adjudication, the adjudicating authority confirmed the aforesaid denial of credit along with applicable interest and penalty. Aggrieved with the said order, appellant filed an appeal before the Tribunal.

Held

The Tribunal held that a manufacturer is eligible for credit of the ‘duty paid’ on inputs and not “duty payable’. The Tribunal further held that there is no provision in excise laws for the re-assessment of the duty paid on inputs at the recipient’s end. It is obligatory on the revenue to re-assess the duty at supplier’s end in order to recover differential duty therefrom rather than denying credit to the input recipient. Therefore it was held that the credit has been correctly availed and the appellant is not required to reverse any part thereof (proportionate to the extinction in price).

Authority

Bajaj Auto Ltd. vs. Commissioner of Central Excise – 2009 TIOL 1735

4. No obligation on the DTA unit to reverse the accumulated balance of Cenvat credit at the time of its conversion into EOU

Facts

Appellant is engaged in the manufacture of pharmaceutical products and bulk drugs falling under Chapter 29 of Central Excise Tariff Act. It avails credit on inputs, packing materials, etc. The unit was converted into 100% EOU and its entire stock of inputs was transferred to EOU without reversing the credit availed thereon. A show cause notice was issued demanding the reversal of the credit availed on inputs which were transferred to EOU on conversion of DTA unit. On adjudication, the demand was confirmed along with the applicable interest and penalty. Commissioner (Appeals) also upheld the adjudication order. Appellant therefore challenged the appellate order before the Tribunal.

Held

The Tribunal held that inputs on which credit availed was availed by the DTA unit were never removed from the premises of the DTA unit at the time of its conversion into an EOU. Thus, there was no contravention of any of the provisions of Cenvat Credit Rules, 2004. Further, no provision contained in the Cenvat Credit Rules, 2004 contemplates reversal of credit availed on inputs by a DTA unit at the time of its conversion into EOU.

Authority

Sun Pharmaceutical Industries Ltd. vs. Commissioner of Central Excise, Puducherry – 2009 TIOL 1613