Credit reversal tantamounts to non taking of credit and benefit of notification available.

PJ/CASE LAW/2015-16/2727

Case:- JCT LTD. VERSUSCOMMISSIONER OF C. EX., JALLANDHAR

Citation:- 2015 (318) E.L.T. 275 (Tri. - Del.)

Brief facts:- The issues involved in the appeals filed by M/s. JCT Limited (hereinafter referred to as the assessee) and also filed by the Revenue, are common and hence these appeals were heard together and were being disposed of by a common order. The assessee in their composite mill manufactured cotton yarn from cotton and used the same within the factory for weaving of fabrics. In respect of captive clearances of cotton yarn, they were availing full duty exemption under Notification No. 30/04-C.E., dated 9-7-2004 under which the goods covered by this notification were fully exempt from duty, if no Cenvat credit in respect of inputs have been taken. The period of dispute in this case was in respect of the November, 2005, December, 2005, and January to March, 2006. During these periods, the assessee took Cenvat credit in respect of the excise duty paid on packing material. The Cenvat credit in respect of packing material taken during January to March, 2006 was Rs. 2,753/- and the same during November, 2005 and December, 2005 was Rs. 1,622/-. Subsequently on being pointed out by the Department, they reversed the credit and there was no dispute that this credit was not utilised by the assessee for payment of duty on any of their final product. The Department subsequently was of the view that since the assessee had taken Cenvat credit in respect of inputs, they would not be eligible for the benefit of Notification No. 30/04-C.E. even if the credit was subsequently reversed. It was on this basis that the benefit of exemption Notification No. 30/04-C.E. was denied to the appellant and duty demands were confirmed by two separate orders-in-original. The original adjudicating authority while confirming the duty demand by denying the exemption Notification No. 30/04-C.E., allowed the cum-duty benefit that was, he treated the sale price of the yarn as including the excise duty and permitted the abatement of excise duty. The original adjudicating authority while confirming the duty demand along with interest also imposed penalty on the appellant. While the Revenue challenged before Commissioner (Appeals) the orders of the original adjudicating authority in respect of permitting the cum-duty benefit, the assessee challenged the orders of the original adjudicating authority confirming the duty demand by denying the exemption and imposing the penalty. The Commissioner (Appeals) by four separate orders, upheld the lower authority’s order with regard to confirming of duty demand, but did not accept the Revenue’s plea that cum-duty benefit should not be allowed. The Commissioner (Appeals), however, set aside the penalty. Against these orders of the Commissioner (Appeals) while the assessee had filed appeals against the portion of the order confirming duty demand, the Revenue was in appeal against the part of the order of the Commissioner (Appeals)’s setting aside the penalty and permitting the cum-duty benefit.

Appellant’s contention:- Shri Rajesh Chhibber, advocate, the learned counsel for the appellant, pleaded that the core issue involved in these cases was as to whether the benefit of Notification No. 30/04-C.E. would be admissible to the assessee during November and December, 2005 and January to March, 2006, that the only ground for denial of the exemption benefit was that the assessee during these periods had taken Cenvat credit on packing material, that while the assessee during November and December, 2005 period had taken the credit of Rs. 1,622/- and during January to March, 2006 had taken the credit of Rs. 2,753/-, they had not utilised it and had reversed both the credits immediately on being pointed out by the Department, that in view of this, for the purpose of Notification No. 30/04-C.E. they should be treated as not having availed the Cenvat credit, that once the credit taken in respect of inputs had been reversed, the same had to be treated as the not having been availed, that in this regard he relied upon the judgment of the Apex Court in the case of Chandrapur Magnet Wire (P) Ltd. v. CC, Nagpur reported in 1996 (81)E.L.T.3 (S.C.)and also the judgment of Hon’ble Allahabad High Court in the case of Hello Minerals Water (P) Ltd. v. Union of India reported in 2004 (174)E.L.T.422 (All.), wherein Hon’ble Allahabad High Court relied upon the Apex Court’s judgment in the case of Chandrapur Magnet Wire (P) Ltd. v. CC, Nagpur (supra) had taken the same view, that in view of this, the impugned order upholding the duty demand based on denial of the exemption Notification No. 30/04-C.E. was not correct, that since the demand itself was not sustainable, the other issues - imposition of penalty or denial of cum-duty benefit would not arise and as such there was no merit in the Revenue’s appeal. He, therefore, pleaded that the impugned order confirming the duty demand based on denial of the Notification No. 30/04-C.E. was not sustainable.

Respondent’s contention:- Shri Pramod Kumar, learned Jt. CDR, defended the impugned orders of the Commissioner (Appeals) confirming the duty demands based on the denial of exemption Notification No. 30/04-C.E. He pleaded that once the Cenvat credit had been taken, the benefit of exemption Notification No. 30/04-C.E. would not be available as this exemption was subject to the condition that no input duty credit had been taken and in this regard subsequent reversal of the credit would not make any difference. He, therefore, pleaded that the Commissioner (Appeals) had correctly upheld the confirmation of duty demand. He, however, assailed the Commissioner (Appeals)’s order regarding permitting cum-duty benefit and setting aside the penalty by reiterating the grounds of appeal in the Revenue’s appeals.

Reasoning of judgment:- The core issue in the appeals was as to whether in the circumstances of the case, the assessee would be eligible for benefit of exemption Notification No. 30/04-C.E. There was no dispute that the benefit of the exemption notification is subject to the condition that no duty credit that was taken but the assessee during November and December, 2005 had taken Cenvat credit of Rs. 6,622/- in respect of certain inputs and during January to March, 2006 had taken Cenvat credit of Rs. 2,753/- in respect of certain inputs. However, the assessee’s claim that this credit had not been utilised and had been reversed as soon as this irregularity was pointed out by the Department was not refuted by the Department. Since the credit taken was reversed without being utilised, in our view, the judgment of Hon’ble Allahabad High Court in the case of Hello Minerals Water (P) Ltd. v. Union of India (supra) which is based on the Apex Court’s judgment in the case of Chandrapur Magnet Wires (P) Ltd. v. CC, Nagpur (supra) would be applicable to the facts of this case and the assessee have to be treated as not having taken the Cenvat credit and would be eligible for the exemption benefit. In view of this, the impugned order denying the benefit of exemption Notification No. 30/04-C.E. and confirming the duty demand on this basis against the assessee was not sustainable and the same was set aside. Since the duty demand itself had been set aside the Revenue’s appeals regarding denial of cum-duty benefit exemption and penalty also would not survive. Thus, while the appeal Nos. E/330-331 of 2009 were allowed and the appeal Nos. E/555-556 of 2009 and 1048-1049 of 2009 filed by the Revenue was dismissed.

Decision:- Assessee appeal allowed.

Comment:- The gist of this case is that the assessee could not be denied benefit of exemption notification no. 30/04-C.E. when the credit wrongly availed was reversed before its utilisation. This is for the reason that credit reversal tantamounts to non taking of cenvat credit in light of the Apex Court judgment given in the case of Chandrapur Magnet Wires (P) Ltd.

Prepared by:- Prayushi Jain

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PJ/CASE LAW/2015-16/2727

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