Whether assessee can be compelled to avail benefit of a particular exemption notification?

PJ/Case law/2013-14/1924

Case:-M/s NAHAR FIBRES VERSUS COMMISSIONER OF CENTRAL EXCISE &SERVICE TAX, CHANDIGARH-II

Citation:-2013-TIOL-1515-CESTAT-DEL

Brief Facts:-Facts giving rise to these two appeals and stay applications are, in brief, as under:-

The appellant are manufactures of 100% cotton yarn and Acrylic spun yarn. During period from April'09 to July'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. 29/2004-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. 30/2004-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 admissible in respect of these capital goods. On this basis the Department issued two Show Cause Notices, dtd. 02.08.2010 & 19.08.2010 for recovery of alleged wrongly availed capital goods credit amounting to Rs. 65,650/- along with interest and also for imposition of penalty. These Show Cause Notices were adjudicated by the Deputy Commissioner by a common order dt. 26.05.11 by which the Cenvat Credit demands were confirmed along with interest and penalty of Rs.25,000/- was imposed. On appeal being filed to Commissioner (Appeals) against this order, the same was upheld vide Order-in-Appeal dtd. 30.01.13 against which this appeal has been filed along with stay application.

Appellant Contentions:-Appellant submitted that during the period of dispute, the appellant were availing of Notification No. 29/2004-CE under which the Rate of duty is 4% adv., without any condition and also exemption Notification No. 30/2004- 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. 30/2004-CE, that the goods cleared under Notification No.29/04-CE cannot be treated as exempted goods covered by Notification No. 30/2004-CE, that since the capital goods were not exclusively used for exempted goods, the provisions 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 Contentions:-Sh. A. K. Jain, learned Jt. CDR, 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 clearances made 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:-We have considered the submission from both sides and perused the record, we find that 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 from 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 incorrect, as Exemption Notification No. 29/2004-CE is an unconditional exemption which prescribes a rate of duty of 4% advalorem. 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 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 is stayed till the disposal of the appeals.

Decision:-The stay applications are allowed.

Comment:-The essence of this case is that department cannot force assessee to take benefit of a particular exemption notification and it is settled position of law that when there are two beneficial notifications in force, the assessee is at the liberty to choose the notification which is most beneficial to him. As in the present case, for some clearances, the assessee availed the benefit of concessional rate of duty benefit, the contention that the clearances are to be mandatorily made by availing benefit of nil rate of duty and that the concessional duty paid is like deposit is totally erroneous. Further, the capital goods were used in the manufacture of dutiable goods also, the credit taken on the same cannot be denied prima facie. Consequently, the stay application was allowed.

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PJ/Case law/2013-14/1924

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