When two exemption notifications are in force, choice remains with assessee to avail benefit of any one.

Case:-ARVIND LTD. VERSUS COMMISSIONER OF C. EX., AHMEDABAD-III

Citation:-2016 (334) E.L.T. 146 (Tri. - Ahmd.)

Brief Facts:-Both the appellants are composite textile mills engaged, inter alia, in the manufacture of 100% cotton fabrics falling under Chapter 52 of the Schedule to the Central Excise Tariff Act, 1985, which were cleared for export as well as for home consumption. Appellants were simultaneously availing exemption under Notification No. 29/2004-C.E. and 30/2004-C.E. both dated 9-7-2004. Notification No. 29/2004-C.E. prescribed concessional rate of duty @ 4% adv. unconditionally for 100% cotton fabrics and in this case the appellants also availed CENVAT Credit of duty paid on inputs, capital goods and input services used in the manufacture of 100% cotton fabrics, which were exported. On the other hand, Notification No. 30/2004-C.E. prescribed Nil rate of duty on 100% cotton fabrics subject to the condition that no CENVAT Credit of duty paid on inputs shall be availed & the appellants availed exemption under this Notification also in respect of 100% cotton fabrics cleared for home consumption. On 7-12-2008, Notification No. 29/2004-C.E. was amended vide Notification No. 58/2008-C.E. and the rate of duty on the said goods was reduced from 4% adv. to Nil without imposition of any condition. A fresh Notification No. 59/2008-C.E. was simultaneously issued on 7-12-2008, which prescribed 4% rate of duty on the said goods without imposing any condition. Thus on 7-12-2008, there were two notifications, prescribing different effective rates of duty Notification No. 29/2004-C.E. as amended which prescribed nil rate of duty and the Notification No. 59/2008-C.E. prescribed concessional 4% ad valorem rate of duty for 100% cotton fabrics without imposing any conditions. Revenue entertained a view that by virtue of sub-section (1A) of Section 5A of the Central Excise Act, 1944, the appellants could not opt for payment of duty @ 4% on export of 100% cotton fabrics under Notification No. 59/2008-C.E. when the goods were unconditionally exempted from payment of duty under Notification No. 29/2004-C.E. as amended on 7-12-2008, Therefore, Revenue issued show cause notices to the appellants for recovery of CENVAT Credit taken by them during the period from 7-12-2008 to 31-3-2009 on the grounds that the appellants were not eligible for the same in view of the provisions of Rule 6(1) and Rule 6(4) of the CENVAT Credit Rules, 2004 as their final product - (100% Cotton Fabric) was unconditionally exempt from payment of duty under the said Notification No. 29/2004-C.E. as amended on 7-12-2008. The original adjudicating authorities disallowed CENVAT Credit to the appellants and ordered for recovery of the same along with interest under Rule 14 of the CENVAT Credit Rules, 2004 and imposed penalties on them under Rule 15 of the CENVAT Credit Rules, 2004. On appeal by the appellants, the Commissioner (Appeals) rejected their appeals vide the impugned Order-in-Appeal.

Appellant’s Contention:-When two notifications are operative, it is the choice of the assessee to select any notification and either pay duty or avail full exemption. The question of applying Section 5A(1A) would not arise when two notifications simultaneously operate and are unconditional. The provisions of Section 5A(1A) apply only if there is only one notification exempting goods absolutely. In this context he relied upon the following decisions :

a)        CCB, Baroda v. Indian Petrochemicals [1997 (92) E.L.T. 13 (S.C.)];

b)        HCL Ltd. v. Collector of Customs, New Delhi [2001 (130) E.L.T. 405 (S.C.)];

c)         Share Medical Care v. Union of India [2007 (209) E.L.T. 321 (S.C.)]; and

d)        Commissioner of Central Excise v. Grand Card Industries & Others, [Delhi High Court Order No. CEAR 7/2000, dated December, 2013 = 2014 (305) E.L.T. 19 (Del.)].

That the appellants claimed duty payment option and availed CENVAT Credit only when the goods were exported, obviously with intention to avail CENVAT credit in respect of goods exported as per Government Policy. It was his case that when goods are exported, duty paid on inputs going into such goods is not to be exported and should be available as refund, for which various schemes, such as refund/rebate of duty on inputs, drawback purchase of inputs without payment of duty, taking of CENVAT Credit etc., are prescribed. That the authorities have erred in observing that the provisions of Rule 6(1) of CENVAT Credit Rules, 2004 was applicable and Rule 6(6) would not apply to appellant’s case. In this context, he relied upon the following case laws :

(a)       Repro India Limited v. Union of India [2009 (235) E.L.T. 614 (Bom.)];

(b)       Aarvee Denims & Exports Ltd. v. Commissioner of Central Excise, Ahmedabad-I [Order Nos. A/11694-11704/WZB/AHD/2013, dated December 3, 2013];

(c)       Commissioner of Central Excise v. Drish Shoes Ltd. [2010 (254) E.L.T. 417 (H.P.)]; and

(d)       Well Known Polyesters Ltd. v. Commissioner of Central Excise, Vapi [2012 (25) S.T.R. 411 (Tri. Ahmd.) = 2011 (267) E.L.T. 221 (Tribunal)

(iii)       That in any case the entire facts were in the notice of the Department, as monthly returns including those relating to availment of CENVAT Credit after the export of goods were being submitted to the jurisdictional officers. Therefore, penalty should not have been imposed on the appellants.

Respondent’s Contention:-The impugned Order-in-Appeal has been correctly passed by the Commissioner (Appeals) and appellants were not required to pay any duty in view of the provision contained in Section 5A of the Central Excise Act, 1944.

Heard both sides and perused the case records. The issues to be decided before the Bench are :

(i)         Whether it is the choice of the assessee to select any notification and pay duty or avail exemption. Two notifications, one granting absolute unconditional exemption to excisable goods and the other granting unconditional partial exemption to the said goods, are operative simultaneously and whether Section 5A(1A) of the Central Excise Act, 1944 would be applicable,

(ii)        Whether the provisions of Rule 6(1) or Rule 6(6) of CENVAT Credit Rules, 2004 was applicable to appellant’s case.

With regard to the first issue at paragraph No. 5(1) we find that the issue is no more res integra and has been decided by Apex Court in the case of Collector of Central Excise, Baroda v. Indian Petro Chemicals (supra), Hon’ble Apex Court has laid the following law :

“We have read the judgment and order of the Customs, Excise and Gold (Control) Appellate Tribunal under appeal. It came to the conclusion that two exemption notifications were applicable and gave to the assessee the benefit of that notification which was more beneficial to it. Having read the judgment and order and heard learned counsel, we see no good reason to interfere with the judgment and order under appeal. The appeal is dismissed. No order as to costs.”

Similarly, in the case of Share Medical Care v. Union of India (supra), the Hon’ble Supreme Court held as follows :

In the instant case, the ground which weighed with the Deputy Director General (Medical), DGHS for non-considering the prayer of the appellant was that earlier, exemption was sought under category 2 of exemption notification, not under category 3 of exemption notification and exemption under category 2 was withdrawn. This is hardly a ground sustainable in law. On the contrary, well settled law is that in case the applicant is entitled to benefit under two different Notifications or under two different Heads, he can claim more benefit and it is the duty of the authorities to grant such benefits if the applicant is otherwise entitled to such benefit. Therefore, non-consideration on the part of the Deputy Director General (Medical), DGHS to the prayer of the appellant in claiming exemption under category 3 of the notification is illegal and improper. The prayer ought to have been considered and decided on merits. Grant of exemption under category 2 of the notification or withdrawal of the said benefit cannot come in the way of the applicant in claiming exemption under category 3 if the conditions laid down thereunder have been fulfilled. The High Court also committed the same error and hence the order of the High Court also suffers from the same infirmity and is liable to be set aside.”

In the case of Grand Card Industries (supra), Delhi High Court held as under :

The stand of the Revenue that since the respondent was a SSI Unit and covered under the Notification No. 1/93 and clearance of goods upto a value of Rs. 30 lakh was exempted from payment of duty, the benefit of MODVAT scheme could not be availed in terms of Rule 57C is counter-productive and not beneficial for the respondent Assessee. It works against them and makes them in-competitive and places them at a disadvantage

A manufacturer cannot simultaneously avail of double benefits one of the MODVAT Scheme and the other of the exemption notification unless expressly permitted to do so. In case a manufacturer is covered both under the MODVAT scheme and an exemption notification, then the manufacturer should have right to choose to avail the benefit of either of the two whichever is more attractive and beneficial. The choice once exercised is binding and final and interchange may not be permissible, unless allowed but this is different to arguing that choice is available. The two provisions are in alternative but the light of choice is not curtailed.”

Reasoning Of Judgment:- When two exemption notifications, one granting absolute unconditional exemption to excisable goods and the other granting unconditional partial exemption to the said goods, are operative simultaneously, it is the choice of the appellant to opt for that notification which is more beneficial to him. In the present facts and circumstances of these appeals, provisions of Section 5A(1A) of the Central Excise Act, 1944 are not applicable.

The petitioners had manufactured both dutiable and exempted final product (packaged software and printed books respectively). The petitioner has taken credit on input used in the manufacture of dutiable as well as exempted final products. If the exempted products are exported outside India the provisions of Rule 6(6)(v) of the Cenvat Credit Rules are applicable. Therefore, the bar provided under Rule 6(1) and the liability created under Rule 6(3)(b) of the Cenvat Credit Rules, 2004 are not attracted. By denying to the petitioner from exporting the printed books under bond what the respondents want to do is in fact to levy 10% on the sale price of the printed books in terms of Rule 6(3)(b) of the Cenvat Credit Rules, 2004. In Tribunal’s opinion this is wholly impermissible.

The provisions as now contained in Rule 6 of the Credit Rules, 2004 were contained in Rules 57C and 57CC of the Central Excise Rules, 1944 as they stood prior to 1st April, 2000. From 1st April, 2000 till 30th June, 2001 similar provisions were contained in Rule 57AD of the Central Excise Rules, 1944. In the context of these Rules, circular dated 8th November, 2001 of the Ministry of Finance was issued. It dealt with the question whether 8% has to be paid on the sale price of exempted goods. Under Rule 6(3)(v) of Cenvat Credit Rules, 2004, to 8% has been increased to 10%. The relevant portion of the Circular dated 8th November, 2001 reads as under :-

“Further, it is now clearly and specifically mentioned in Rule 57AD(4) that the provisions relating to non-availability of Modvat credit and reversal @ 8% is not applicable in case the exempted goods are cleared for export under bond in terms of the provisions of Rule 13. In the new Rule 57AD, it has been explicitly provided what was implicity in erstwhile Rules 57C and 57CC. Further, the present Rule 57AD(4) clearly goes on to show that the exempted goods are eligible to be exported under bond. To interpret otherwise will render the new Rule 57AD(4) redundant.

In view of the foregoing in this case the provisions of sub-rule 57C(1) are satisfied as stipulated under Rule 57C(2) as well as Rule 57CC(6)1 and there was no need to comply with the provisions of Rule 57CC(1). Therefore, it is clear that an amount of 8% of the price of the goods exported is not required to be paid irrespective of whether the exported goods are exempted or otherwise.”

It would thus appear that the direction of the respondent No. 2 to the petitioners to pay 10% even though printed books were exported is not legally sustainable. It is only in the event the petitioners does not export the printed goods and do not maintain the account as contemplated by Rule 6(2) the petitioner would be required to pay 10% on the sale price of the printed books not so exported.
Even though Rule 6(1) of the Cenvat Credit Rules, 2004 provides that no Cenvat credit will be available in respect of the inputs used in the manufacture of exempted products. Rule 6(6)(v) of the Cenvat Credit Rules creates an exemption inter alia in respect of the excisable goods removed without payment of the duty for export under bond in terms of Central Excise Rules, 2002. Considering language of Rule 6(6)(v) of the Cenvat Credit Rules, 2004 the petitioners are entitled to avail Cenvat credit in respect of the inputs used in the manufacture of the final products being exported irrespective of the fact that the final products are otherwise exempt.”

On the same issue, Hon’ble High Court of Himachal Pradesh, in the case of Commissioner of Central Excise v. Drish Shoes Ltd. (supra), while dealing with the question of refund under Rule 5 of the CENVAT Credit Rules, 2004 held as under :

In view of the above discussion, we hold that an assessee, manufacturing goods chargeable to nil duty, is eligible to avail CENVAT credit paid on the inputs under the exception clause to Rule 6(1) as contained in Rule 6(5) of CENVAT Credit Rules, 2002 and Rule 6(6) of CENVAT Credit Rules, 2004, used in the manufacture of such goods, if the goods are exported. Question No. 1 is answered accordingly.”

Decision:-Appeal allowed.

Comment:- The gist of the case is that when there are two exemption notifications, the assessee has the choice to opt for any one notification which is more beneficial to him. Furthermore, in the present case, the provisions of Rule 6 were held to be inapplicable because assessee manufactured exempted goods that were exported and Rule 6(6) of CCR, 2004 clearly provides that the provisions of Rule 6 do not apply in case of goods which are exported.

Prepared By: - Alakh Bhandari

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PJ/CASE LAW/2016-17/3159

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