Quantum of Cenvat credit admissible when goods are procured from 100% EOU which had availed benefit of Notification no. 2/95-CE

PJ/Case Laws/2011-12/1450

Case: Commissioner of Central Excise v/s H.K. Moulders

Citation: 2011 (268) E.L.T. 43 (Guj)

Issue:- Quantum of Cenvat credit admissible when goods are procured from 100% EOU which had availed benefit of Notification no. 2/95-CE

Brief Facts:- Respondent had availed the Cenvat credit of duty paid on inputs on the basis of invoices issued by 100% EOU during the period 01.07.2001 to 10.02.2002. The 100% EOU had availed benefit of Notification no. 2/95- CE and had paid 50% of the total duty payable.

Department was of the view that the respondent was eligible to take Cenvat credit equal to the actual additional duty paid by the 100% EOU. Show cause notice was issued to recover Rs. 146511/- of Cenvat credit along with interest and for imposing penalty.

The Demand was confirmed by the Adjudicating Authority. Respondent’s appeal before the Commissioner (Appeals) was allowed.

Department filed appeal against the order of the Commissioner (Appeal) before the Tribunal. The Tribunal dismissed the appeal and determined the quantum of credit as per the Larger Bench’s judgment in Vikram Ispat v. Commissioner[2000 (120) E.L.T. 800 (Tri. -LB)], where the break up of duty was available invoices and CENVAT credit was restricted in case of 100% EOU’s as per sub-rule 6(a) of Rule-3 of CENVAT Credit Rules, 2001. It was held that even though the quantum of duty leviable on the goods manufactured by a 100% E.O.U. is to be determined on the basis of duties of customs on like goods produced or manufactured outside India, if imported into India, the duty is leviable and collected under Central Excise Act. The Tribunal agreed with the view taken by Commissioner (Appeals) that the supplier in the present case has paid excise duty and therefore, the adjudicating authority has erred in holding that the supplier unit has paid 50% of the additional duty.

Hence, Department is in appeal before the High Court.

Appellant’s Contention:- Department contended that under clause (a) of sub-rule (6) of Rule 3 of the said Rules, respondent-assessee was eligible to take Cenvat credit equal to the additional duty leviable on like goods under Section 3 of the Customs Tariff Act, 1975 paid on such inputs. In present case, the supplier-100% EOU had paid 50% of additional duty on the goods cleared to the respondent. The respondent was entitled to avail of Cenvat credit to the extent of the actual additional duty paid by the 100% EOU i.e. supplier of inputs.

Reasoning of Judgment:- The High Court observed that the Commissioner (A) had taken note of the fact that respondent had received goods from a 100% EOU. Goods manufactured by a 100% EOU are governed by Section 3(1) of the Central Excise Act, which provides that the duty of excise shall be an amount equal to the aggregate of the duties of customs on like goods produced or manufactured outside India if imported into India. Thus, at the time of clearance of goods by a 100% EOU, what is paid is duty of excise and not customs duty though quantum of collection is equal to the duty of customs.

It is observed that the measure of collection of duty does not change the nature of duty. Hence, what has been paid by the supplier is duty of excise and not duties of custom (basic customs duty, additional duty etc.). The Adjudicating Authority erred in holding that the supplier unit has paid 50% of the additional duty. The Commissioner (Appeals) has further found that under Rule 3(6)(a) of the Rules, as they stood at the relevant time, the respondent was eligible to avail of Cenvat credit equal to the additional duty leviable on like goods under Section 3 of the Customs Tariff Act, 1975, paid on such inputs. The Commissioner (Appeals) was of the view that on a plain reading of the said provision, credit was required to be restricted to the extent of duty which was equal to the additional duty leviable on like goods. If the additional duty leviable was less than the actual duty paid on the inputs cleared from a 100% EOU, the manufacturer in India would be eligible only for the credit equivalent to the additional customs duty leviable. On the other hand, if the duty actually paid by a 100% EOU on inputs cleared by them was less than availed duty of customs payable on like goods, the manufacturer would be eligible only to the extent of actual duty paid by a 100% EOU. Reiterating that actual duty paid by a 100% EOU in this case is a duty of excise and not basic customs duty, additional duty of customs etc. Commissioner (Appeals) has observed that the supplier unit had paid Rs. 8,52,799/-, whereas the impugned order indicated admissible credit of Rs. 1,46,511/- i.e. 50% of additional duty leviable and has accordingly, computed that additional duty leviable in the present case at Rs. 2,93,023/- i.e. twice the credit allowed. It was held that since the credit admissible to the respondent was equal to the duty paid by the supplier unit or the additional duty leviable whichever is lower, therefore, the credit available to the respondent was Rs. 2,93,023/-.

The High Court perused that the decision of Larger Bench of the Tribunal in Vikram Ispat case.

It was held that under Notification No. 2/95 a 100% E.O.U. was exempted from so much of duty of excise as was in excess of the amount calculated at the rate of 50% of each of duty of customs leviable on the like goods produced or manufactured outside India, if imported into India provided that the amount of duty payable should not be less than the duty of excise leviable on like goods produced or manufactured by the units in Domestic Tariff area. In effect and substance, the said notification lays down that the E.O.U. was required to pay a minimum of 50% of each of duty of customs leviable (read with any other notification for the time being in force) on the like goods produced or manufactured outside India. However, this was also subject to a caveat that the amount of duty payable should not be less than the duty of excise leviable on like goods manufactured in Domestic Tariff Area (read with any relevant notification). Thus, if the aggregate of customs duties leviable on like goods produced or manufactured outside India was less than the duty of excise leviable on like goods manufactured in Domestic Tariff Area, the E.O.U. would be liable to pay more than 50% of each of the duty of customs. However, one thing is clear that what is being paid by the E.O.U. is an excise duty and for the purpose of computing the limit of exemption, the measure is 50% of each of the duty of customs leviable on like goods produced or manufactured outside India, provided that the said 50% is not less than the amount of excise duty leviable on like goods produced or manufactured by the units in the Domestic Tariff Area.

The High Court perused the provisions of sub-rule (6) of Rules 3 of CCR, 2004 and noted that sub-rule (6) carves out an exception to sub-rule (1) of Rule 3, inasmuch as the same restricts the entitlement to CENVAT credit in respect of inputs or capital goods produced or manufacture by a 100% EOU to the extent which is equal to the additional duty leviable on like goods under Section 3 of the Customs Tariff Act, 1975 (hereinafter referred to as the Tariff Act) paid on such inputs or capital goods.

Thus, it as held that the Notification No. 2/95 exempts 100% E.O.U.s from payment of excise duty to the extent stated thereunder. The excise duty is to be calculated at the rate of 50% of each of the duty of customs leviable on the like goods produced or manufactured outside India. Thus, what is actually paid is excise duty which is computed in terms of the duty of customs leviable on like goods produced or manufactured outside India. Rule 3(6)(a) restricts the CENVAT credit in respect of inputs or capital goods produced or manufactured by a 100% per cent E.O.U. to the extent which is equivalent to the additional duty leviable on like goods under Section 3 of the Customs Tariff Act, 1975 on such inputs or capital goods. Thus, on a conjoint reading of Notification No. 2/95-C.E. and clause (a) of sub-rule (6) of Rule 3, it is apparent that the notification provides for exemption from payment of excise duty by 100% E.O.U.s and the extent therefore. Whereas Rule 3(6)(a) restricts the extent of CENVAT credit that can be availed of in respect of inputs or capital goods produced or manufactured by a 100% E.O.U. to the extent equal to the additional duty leviable on like goods under Section 3 of the Customs Tariff Act, 1975 paid on such inputs or capital goods. Thus, while computing the extent of CENVAT credit, the only relevant aspect would be as to what is the amount of additional duty leviable on like goods under the Tariff Act paid on such inputs or capital goods. The unit would be entitled to CENVAT credit in respect of the whole of the amount of additional duty leviable and paid on such input or capital goods. The same has nothing to do with the amount of exemption availed of by the manufacturer of the inputs in respect of the excise duty payable by it. Since the actual amount of additional duty paid by the respondent has not been brought on record the method adopted by Commissioner (Appeals) appears to be proper and reasonable.

No infirmity in order of Tribunal. No substantial question of law involved.

Decision:- Appeal dismissed.

Comments

PJ/Case Laws/2011-12/1450

Post a Comment

Query