Validity of show cause notice for availment of cenvat credit.

PJ/Case Law /2016-17/3398

Case:- MONTAGE ENTERPRISES PVT. LTD. Versus COMMISSIONER OF C. EX., NOIDA

Citation:- 2016 (342) E.L.T. 294 (Tri. - All.)

Brief facts:- The present appeal is arising out of the Order-in-Original No. 20/COMM/NOIDA/2009, dated 11-5-2009 passed by Commissioner of Central Excise, Customs, Noida.
The brief facts of the case are that the appellants are engaged in the manufacture/production of Printed plastic Laminated Films, Printed Pouches, Printed Plastic outer Pouches, Plastic material, all falling under Chapter 39 of Schedule to Central Excise Tariff Act, 1985. The appellants were issued with a Show Cause Notice dated 3-4-2008, calling upon them to show cause as to why an amount of Rs. 5,16,65,156/- should not be demanded and recovered from them under the provisions of clause (b) of sub-rule (3) of Rule 6 of Cenvat Credit Rules, 2004, read with Explanation II of the said Rule and Rule 14 of Cenvat Credit Rules, 2004 and Section 11A of Central Excise Act, 1944. The contention of the Revenue was that as ruled by Hon’ble Apex Court in the case of Metlex (I) Pvt. Ltd. reported in 2004 (165)E.L.T.129 (S.C.), the appellants were not required to pay Central Excise duty on laminates manufactured by them. It was alleged that the appellants wrongly paid Central Excise duty and wrongly passed on Cenvat credit to their buyers. It was further alleged that appellants were not admissible to take Cenvat credit of duty paid on input, input services and capital goods used in the manufacture of laminates. It was alleged that they were also manufacturing excisable finished products and were not maintaining separate inventory and therefore, the said demand was raised.

Appellant’s contention:- The appellants contended before the Original Authority that they were also having one unit manufacturing similar products in the jurisdiction of Hon’ble High Court of Jammu and Kashmir and Hon’ble High Court of Jammu & Kashmir through its Interim Order dated 31-12-2007, allowed the unit manufacturing similar product in the jurisdiction of said Hon’ble High Court to pay duty. Therefore, they were also paying duty and there is nothing wrong in paying duty on laminates and since the goods on which amount under Rule 6(3)(b) of said Rules is demanded are duty paid goods, the demand is unsustainable.
The Original Authority decided the said show cause notice through the impugned Order-in-Original dated 11-5-2009, wherein the Original Authority has held that by observing that the appellants were manufacturing the other finished products apart from excisable goods, and they were not maintaining separate inventory and, therefore, he confirmed the demand and imposed penalty of Rs. 60 lakhs.
Aggrieved by the said impugned order, the appellants preferred an appeal before this Tribunal. The grounds of appeal, inter alia, included that the said provisions of Rule 6(3)(b) of said Rules were not applicable to the facts of this case. They further contended that they never manufactured dutiable and exempted goods at the same point of time and that no evidence has been adduced by the ld. Commissioner in his findings regarding the same. The ld. Commissioner has also not given the details about which the same were dutiable and exempted goods. The ld. Commissioner has also pointed out that the appellants have wrongly taken Cenvat credit on the raw materials, since the final product laminates manufactured by the appellant are not chargeable to Central Excise duty, in view of the judgment of Hon’ble Apex Court in the case cited above. They have also relied upon various case laws.
The learned Counsel for the appellant has reiterated the grounds of appeal and taken us through the show cause notice, wherein in Para 4 of the show cause notice, the Revenue has contended that appellant have availed Cenvat credit, which was not admissible to them. Secondly, the show cause notice has not established that the dutiable and exempted products were being manufactured out of common inputs on which Cenvat credit has been availed. He has further explained that for the manufacture of pouches, coming into existence of laminates, is a must. Therefore, first laminates are manufactured and then Laminates are converted into pouches. Therefore, at no point of time, the exempted and dutiable goods are manufactured in two streams. He has also relied on case laws in the cases of Markwell Paper Plast Pvt. Ltd. v. Commissioner of Cus. & C. Ex., Noida reported in 2012 (285)E.L.T.76 (Tri.-Del.) and Paper Products Ltd. v. CCE, Mumbai-III, reported in 2014 (304)E.L.T.145 (Tri.-Mumbai), and further submitted that the above case law in the case of Paper Products Ltd. is affirmed by Hon’ble High Court of Bombay as reported in 2015 (320) E.L.T. A200 (Bom.).

Respondent’s contention:-The ld. DR for Revenue has reiterated the contention of Revenue in the show cause notice and the Order-in-Original.
Reasoning of judgment:- The Hon’able judgehave carefully taken up the rival contentions into consideration. They find that the show cause notice contends that the goods manufactured by the appellants were not attracting Excise duty and it has also contended that the Cenvat credit was not admissible to them. If Cenvat credit was not admissible to them, then the Revenue should have issued show cause notice for reversal of Cenvat credit availed by them. The show cause notice is issued for recovery of amount under Rule 6(3)(b) ibid, and the amount to be recovered under Rule 6(3)(b) ibid, is possible only when the Cenvat credit is admissible. They find that contradictory stands were taken in the said show cause notice by the Revenue. Therefore, the show cause notice is not sustainable. Therefore, the Order-in-Original is set aside. They, therefore, allow the appeal with all consequential reliefs, as per law to the appellant.

Decision:- Appeal allowed.

Comment:- The analogy of the case is that show cause notice alleging that goods manufactured by appellants were not attracting Excise duty and Cenvat credit was not admissible to them. If Cenvat credit was not admissible to them, then Revenue should have issued show cause notice for reversal of Cenvat credit availed by them. Show cause notice is issued for recovery of amount and the amount to be recovered under Rule 6(3)(b) ibid is possible only when Cenvat credit is admissible. Contradictory stands were taken in said show cause notice by Revenue is not sustainable.
Prepared by:- Monika Tak

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PJ/Case Law /2016-17/3398

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