Assessee has option to avail benefit of any exemption notification.

PJ/CASE LAW/2015-16/2716

Case:- WINSOME YARNS LTD. VERSUSCOMMR. OF C. EX. & S.T., CHANDIGARH-II

Citation:-2015 (318) E.L.T. 261 (Tri. - Del.)

Brief facts:- Facts giving rise to these two appeals were as under:-
The appellants were manufacturer of yarn. During period from Sept., 2009 to May, 2010, they received capital goods in respect of which they took Cenvat credit. During this period appellants were availing the exemption Notification No. 29/2004-C.E., dated 9-7-2004 as well as Notification No. 30/2004-C.E., dated 9-7-2004. Notification No. 29/2004-C.E., prescribed a concessional rate of duty of 4% for yarn without any condition and as such the appellant could avail input duty Cenvat credit. This exemption Notification was being availed in respect of the yarn manufactured and cleared for export. The yarn meant for export was being cleared on payment of duty at the rate of 4% adv. and was being exported under rebate claim. Notification No. 30/2004-C.E., provides for full duty exemption to the items specified there under subject to condition that no input duty credit was availed. This exemption was being availed in respect of clearances of yarn intended for domestic consumption. However during the period of dispute, the appellant had not taken any input duty credit, either in respect of goods cleared at nil rate of duty under Notification No. 30/2004-C.E., or in respect of the goods cleared under Notification No. 29/04-C.E., on payment of duty at 4% and they have availed Cenvat credit only in respect of the capital goods. The Department was of the view that since in respect of clearances of export under rebate claim, where the goods had been cleared under Notification No. 29/04-C.E., on payment of 4% duty, the appellants were eligible for full duty exemption, as they satisfied the condition for Notification No. 30/04-C.E., but they still chose to pay duty under Notification No. 29/2004-C.E., the amount paid towards duty cannot be treated on duty but only a deposit and the goods have to be treated as the exempted goods cleared under Notification No. 30/04-C.E., and since the capital goods, in question have been used exclusively for manufacture of exempted goods, in view of Rule 6(4) of Cenvat Credit Rules, 2004, no Cenvat credit would be admissible in respect of these capital goods. On this basis, the Department issued two show cause notices both dated 1-10-2010 for recovery of allegedly wrongly availed cenvat credit on capital goods amounting to Rs. 4,88,798/- along with interest and also for imposition of penalty. These Show cause Notices were adjudicated by the Deputy Commissioner by two separate orders by which the Cenvat credit demands were upheld along with interest and penalty of equal amount were imposed. On appeals being filed to Commissioner (Appeals) against these orders, the same were upheld vide Order-in-Appeal 92-93/CE/Appeal/CHD-II/2012, dated 8-3-2013, against which the appeals were filed.

Appellant’s contention:- Sh. Rupinder Singh, advocate, the ld. counsel for the appellant, pleaded that during the period of dispute, the appellants were availing of Notification No. 29/2004-C.E. under which the rate of duty is 4% adv., without any condition and also exemption Notification No. 30/04-C.E., which provides for full duty exemption subject to non-availment of input duty credit, that the goods meant for export were cleared on payment of 4% adv. duty and the goods meant for domestic consumption were cleared at nil rate of duty, that in respect of both the type of clearances, input duty Cenvat credit was not availed and only capital goods Cenvat credit was availed for which there is no prohibition in Notification No. 30/04-C.E., that Notification No. 29/04-C.E., prescribing 4% duty is without any condition and therefore, just because no input duty credit was taken, the appellant cannot be forced to avail full duty exemption under Notification No. 30/04-C.E., that the goods cleared under Notification No. 29/04-C.E., cannot be treated as exempted goods covered by Notification No. 30/04-C.E., that since the capital goods were not exclusively used for manufacture of exempted goods, the provision of Rule 6(4) of Cenvat Credit Rules, 2004 were not applicable and capital goods Cenvat credit cannot be denied, that the appellant had a strong case on merit, therefore it was prayed that the impugned orders be set aside.

Respondent’s contentions:- Shri R.K. Mishra, learned departmental representative, opposed the contentions of the learned counsel and emphasized that while there was no dispute that a part of the clearances of yarn had been made under Notification No. 30/2004-C.E., at nil rate of duty without availing input duty credit and clearances for export had been made under Notification No. 29/2004-C.E., at 4% adv. duty, that in respect of clearance on payment of 4% duty under Notification No. 29/2004-C.E., also the appellant had not availed input duty credit, that the clearance made on payment of 4% duty under Notification No. 29/2004-C.E., were actually the clearance of exempted goods and it was the Notification No. 30/2004-C.E., which was applicable in respect of these clearances and the amount paid as duty cannot be ,treated as duty, as once an assessee was eligible for full duty exemption under an exemption Notification, there was no option for him to pay duty, that looked at from this angle, the capital goods, in question, had been exclusively used in or in relation to manufacture exempted final products and hence the appellants were not eligible for capital goods Cenvat credit.

Reasoning of judgment:- They considered the submissions from both the sides and perused the record. There was no dispute that during period of dispute, the clearances for domestic consumption had been made by the appellant at nil rate of duty by availing the Notification No. 30/2004-C.E. and clearances for export had been made on payment of 4% duty under Notification No. 29/2004-C.E. There was also no dispute that during the period of dispute no input duty credit had been availed and only capital goods Cenvat credit had been availed in respect of which there was no prohibition in Notification No. 30/2004-C.E. Thus the appellant even in respect of clearances made under Notification No. 29/2004-C.E. also, had not availed input duty credit, though in respect of these clearances, they could have availed the input duty Cenvat credit. The point of dispute was as to when the appellants had not availed input duty credit, whether they have option to avail the Notification No. 29/2004-C.E. where the rate of duty is 4%. The Department’s contention was that once the appellant have not availed any input duty credit and they have become eligible for Notification No. 30/2004-C.E., they had no option but to avail of the exemption Notification No. 30/2004-C.E. only and they cannot opt from Notification No. 29/2004-C.E. and pay 4% the duty and in such a situation if any duty payment had been made, it would have to be treated as deposit and the clearances would have to be treated as clearances of fully exempted goods made under Notification No. 30/2004-C.E. and accordingly the appellant would not be eligible for capital goods Cenvat credit. This contention of the Department was totally incorrect, as Exemption Notification No. 29/2004-C.E. was an unconditional exemption which prescribed a rate of duty of 4% ad valorem. There was no condition in this notification that for availing of this exemption prescribing concessional rate of duty of 4% adv., input duty Cenvat credit must be availed. The condition of non-availment of input duty Cenvat credit was for nil duty under Notification No. 30/2004-C.E. But that did not mean that an assessee not availing input duty credit cannot avail the exemption under Notification No. 29/2004-C.E., as this was an unconditional Notification. When an assessee did not avail of input duty credit, he had option to pay 4% duty under Notification No. 29/2004-C.E. and also the option to clear his goods at nil rate of duty under Notification No. 30/2004-C.E. and when two exemption Notifications were available to an assessee, he can always opt for the Notification which was most beneficial for him and in this regard the Department cannot force the assessee to avail a particular exemption Notification. Looked at from this point of view, the Department’s stand was incorrect.
Since during the period of dispute the appellant was clearing the goods by availing full duty exemption as well as on payment of duty, the capital goods cannot be treated as having been used exclusively in the manufacture of exempted goods and Cenvat credit in respect of the same cannot be denied. Consequently the appeals were allowed.

Decision:-Appeal allowed.

Comment:- The gist of the case is that when two notifications are available, the assessee has the option to avail the benefit of either of the notification. Merely because the assessee has complied with the conditions of a particular notification, the assessee cannot be compelled to have availed the benefit of that notification. As, in the present case, the assessee cleared domestic goods at nil rate under notification no. 30/2004 whereas export goods at 4% duty under notification no. 29/2004, it cannot be deemed that the assessee has cleared goods under notification no. 30/2004 only as the condition of non availment of input credit was satisfied. It is at the option of the assessee to claim benefit of notification no. 29/2004 which is unconditional notification and the assessee cannot be forced to avail benefit of nil rate of duty under notification no. 30/2004. As the goods were cleared at 4% duty, the cenvat credit of capital goods could not be denied by contending that the capital goods have been exclusively used in the manufacture of exempted goods.

Prepared by: Prayushi Jain

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PJ/CASE LAW/2015-16/2716

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