Capital goods credit cannot be denied when final products are cleared on concessional rate of duty.

PJ/Case Law/2013-14/1652

Citation:-2013-TIOL-947-CESTAT-DEL

Case:- M/s WINSOME YARNS LTD Vs COMMISSIONER OF CENTRAL EXCISE & SERVICE TAX, CHANDIGARH-II

Brief facts:-The appellant are manufactures of Yarn during the period from Sept.'2009 to May'10, they received capital goods in respect of which they took Cenvat Credit. During this period appellant were availing the exemption Notification No. 29/2004-CE dtd. 09.07.2004 as well Notification No.30/2004-CE dtd.09.07.2004. Notification No. 29/2004-CE prescribes 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-CE provides for full duty exemption to the items specified thereunder subject to condition that no input duty credit is 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-CE or in respect of the goods cleared under Notification No. 29/04-CE, on payment of duty at 4% and they have availed Cenvat Credit in only 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-CE on payment of 4% duty, the appellant were eligible for full duty exemption, as they satisfied the condition for Notification No. 30/04-CE but they still chose to pay duty under Notification No. 29/2004-CE, 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- CE 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 Rule, 2004, no Cenvat Credit would be admissibly in respect of these capital goods. On this basis the Department issued two Show Cause Notice both dtd. 01.10.2010 for recovery of allegedly wrongly availed capital goods along with interest and also for imposition of penalty. These Show Cause Notice 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 against which these two appeals have been filed along with stay application.

Appellant’s Contention:-The appellant, pleaded that during the period of dispute, the appellant were availing benefit of Notification No. 29/2004-CE under which the Rate of duty is 4% adv., without any condition and also exemption Notification No. 30/04-CE 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-CE, that Notification No. 29/04-CE 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-CE, that the goods cleared under Notification No.29/04-CE cannot be treated as exempted goods covered by Notification No.30/04-CE, that since the capital goods were not exclusively used for exempted goods, the provision of Rule 6(4) of Cenvat Credit Rules, 2004 are not applicable and capital goods Cenvat Credit cannot be denied, that the Appellant have a strong prima facie case and hence the requirement of pre-deposit of Cenvat Credit demand, interest thereon and penalty may be waived for hearing of the appeals and recovery thereon may be stayed till the disposal of the appeals.

Respondent’s Contention:- The Respondent opposed the stay applications emphasizing that while there is no dispute that a part of the clearances of yarn had been made under Notification No.30/2004-CE at nil rate of duty without availing input, duty credit and clearances for export had been made under Notification No. 29/04-CE at 4% adv. duty, that in respect of clearance on payment of 4% duty under Notification No. 29/04-CE also the appellant had not availed input duty credit, that the clearance on payment of 4% duty under Notification No. 29/04-CE are actually the clearance of exempted goods and it is the Notification No. 30/04-CE which was applicable in respect of these clearances and the amount paid as duty cannot be treated as duty, as once an assessee is eligible for full duty exemption under an exemption Notification, there is no option for him to pay duty, that looked at from this angle, the capital goods, in question, have been exclusively used in or in relation of manufacture exempted final products and hence the appellant were not eligible for capital goods Cenvat Credit. He, therefore, pleaded that this is not a case for waiver, as the appellant do not have prima facie case in their favour.

Reasoning of Judgment:-After considering the submission from both sides and perusing the record, there is 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-CE and clearances for export had been made on payment of 4% duty under Notification No. 29/2004-CE. There is 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 is no prohibition in Notification No. 30/04-CE. Thus, the appellant even in respect of clearances made under Notification No. 29/2004-CE 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 is as to when the appellant have not availed input duty credit, whether they have option to avail the Notification No. 29/2004-CE where the rate of duty is 4%. The Department's contention is that once the appellant have not availed any input duty credit and they have become eligible for Notification No.30/2004-CE, they have no option but to avail of the exemption notification 30/2004-CE only and they cannot opt for Notification No.29/2004-CE and pay 4% the duty and in such a situation if any duty payment has been made, it would have to be treated as deposit and the clearances would be have to be treated as clearances of fully exempted goods made under Notification No. 30/2004-CE and accordingly the appellant would not be eligible for capital goods Cenvat Credit. This contention of the Department is totally in-correct, as Exemption Notification No. 29/2004-CE is an unconditional exemption which prescribes a rate of duty of 4% ad-valorem. There is no condition in this notification that for availing of this exemption prescribing concessional rate of duty of 4% adv., input duty Cenvat Credit must not be availed. The condition of non-availment of input duty Cenvat Credit is for nil duty under Notification No. 30/2004-CE. But this does not mean that an assessee not availing input duty credit can not avail the exemption under Notification No. 29/2004-CE, as this is an unconditional Notification. When an assessee does not avail of input duty credit, he has option to pay 4% duty under Notification No. 29/2004-CE and also the option to clear his goods at nil rate of duty under Notification No. 30/2004-CE and when two exemption Notifications are available to an assessee, he can always opt for the Notification which is 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 is 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. Therefore, the appellant have a strong prima facie case in their favour. Hence, the requirement of pre-deposit of Cenvat Credit demand, interest thereon and penalty is waived for hearing of the appeals and recovery thereof on stayed till the disposal of the appeals. The stay applications are allowed.

Decision:- Stay granted

Comment:- The gist of this case is that when two exemption Notifications are available to an assessee, he can always opt for the Notification which is most beneficial for him and in this regard the Department cannot force the assessee to avail a particular exemption Notification. If 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.

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PJ/Case Law/2013-14/1652

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