Whether clearing duty free inputs ‘as such’ on payment of duty proper?

PJ/CASE LAW/2014-15/2459

Case:-VIRGO VALVES AND CONTROLS LTD Vs COMMISSIONER OF CENTRAL EXCISE, PUNE-I

Citation:-2014-TIOL-2427-CESTAT-MUM

Brief facts:-The brief facts of the case are that the applicant is a 100% EOU. For manufacturing their final product, they are procuring certain inputs from the domestic manufacturers free of excise duty. After receiving the said inputs, they are testing and at times such consignments are rejected and returned to the supplier. However, while returning the goods to the supplier, they were paying excise duty by debiting the duty amount in the accumulated cenvat credit available with them.

The Revenue's objection is that under Rule 3(4) of the CENVAT Credit Rules, cenvat credit can be utilized for payment of duty in the specified circumstances. In the present case, the inputs being cleared by them are not their final product, when they receive such inputs, no excise duty was paid and, therefore, there was no question of paying duty, particularly by debiting the accumulated cenvat credit which, in turn, can be taken as credit by the supplier and thus the accumulated cenvat credit is being shifted from one manufacturer to the other.

Appellant’s contention:-The learned counsel appearing for the applicant states that under rule 8 of the Central Excise Rules, they can pay the duty either in cash or cenvat credit and there is no requirement that it should be paid in cash only. He also relied upon the Tribunal's decision in the case of Dishman Pharmaceuticals & Chemicals ltd. vs. CCE, Ahmedabad reported in - 2013-TIOL-610- CESTAT-AHM. The learned counsel also stated that they had already intimated the details to the department and, therefore, extended period of limitation cannot be invoked and only a part of the demand is within the normal period of limitation.

Respondent’s contention:-The learned AR, on the other hand, opposed the application on the grounds that since no duty was paid on the inputs at the time of original clearance, no cenvat credit was taken and, therefore, the CENVAT credit Rules are inapplicable in their case and hence there is no question of paying duty from the cenvat credit account during the clearance of the goods.

Reasoning of judgment:-Normally the duty is required to be paid by the manufacturer of the goods. In this case, the applicant is not the manufacturer of the goods in dispute. They also note that when the inputs were originally cleared by the supplier, no excise duty was paid and hence no cenvat credit was taken by the applicant. Prima facie, to them it appears that there was no need to pay any duty when the goods were being returned to the original supplier. By the above process, accumulated cenvat credit got shifted from the applicant to the supplier's unit. They have also considered the Tribunal's decision mentioned by the learned counsel. Keeping in view the overall facts, they direct the applicant to deposit 7.5% of the duty demanded, in cash, within a period of eight weeks and report compliance on 19.01.2015. On payment of the said duty, there would be stay on the recovery of the balance amount of duty, interest and penalty.

Decision:- Pre deposit ordered.

Comment:- The substance of the case is that when no duty was paid on procurement of inputs, then debit of duty on their clearance amounts to shifting of accumulated credit which is not legally proper.

Prepared by:- Monika Tak

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PJ/CASE LAW/2014-15/2459

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