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PJ/Case law/2014-15/2216

Whether credit admissible if input supplier availing area based exemption?

 
Case:- ROYAL INFRACONSTU LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE, RAIPUR

Citation:-2014(301) E.L.T. 671(Tri.-Del.)

Brief Facts:- It was found that Commissioner (Appeals) has dismissed the appellant’s appeals on the ground of non-compliance with the stay order passed by him vide which the appellant was directed to deposit an amount of Rs. 20 lakhs out of total confirmed duty of Rs. 41,49,766/-, as a condition of hearing of their appeal.
The said demand stand confirmed against the appellant by denying them the Cenvat credit availed by them on the basis of invoices issued by the inputs manufacturer M/s. Royal Fasteners (NE) Pvt. Ltd., Guwahati (Assam). The said M/s. Royal Fasteners were availing the benefit of Notification No. 33/99, dated 8-7-1999. The said notification is an area based exemption notification and entitles the manufacturer located in the specified area to first pay the duly by exhausting the Cenvat credit and then to pay the balance amount of duty out of PLA. The duty paid out of PLA is subsequently refunded to the manufacturer. The lower authorities entertained a view that inasmuch as the duty paid by the inputs manufacturer was subsequently refunded to him in terms of said area based exemption notification, it has to be held as if the inputs received by the present appellant was exempted inputs. Further, the invoices issued by the input manufacturer earned the endorsement to the effect - "copy does not entitle, the holder the tax credit". Revenue entertained a view that no credit would be available on the basis of invoices in question. Accordingly, proceedings were initiated resulting in confirmation of demand along with interest and imposition of penalty of equal amount.
Commissioner (Appeals) vide his interim order directed the appel­lant to deposit an amount of Rs. 20 lakh. Inasmuch as the appellant did not de­posit the same and subsequently moved a modification application, the appeal was dismissed for non-compliance with the stay order, without considering the modification application.
 
Appellant Contentions:-The main contention of appellant is that CENVAT cannot be denied when supplier avails the benefit of area based exemption notification no. 33/99 dated 8-7-1999. It has to be held as if the inputs received by him was not exempted inputs. Firstly, he pays the duly by exhausting the Cenvat credit and then to pay the balance amount of duty out of PLA. The duty paid out of PLA is subsequently refunded to the manufacturer. Further, he submitted that CENVAT not cannot be denied when duplicate copy of invoice issued under Assam Value Added Tax Rules containing inscription “this copy does not entitle the holder a tax credit.” So revenue cannot deny such credit. He prays that appeal is to be allowed in his favour.

Respondent Contentions:-The respondent reiterated the findings of the lower authorities and prayed for upholding the order.
 
Reasoning of Judgment:-  Tribunal found that the provisions of Rule 12 of Cenvat Credit Rules, 2004 are specific to the fact that any elegance made in terms of Notification No. 33/99- C.E., dated 8-7-1999, which entitles the manufacturer to claim refund of duty paid out of PLA would not be treated as exempted goods and the Cenvat credit on such inputs shall be admissible. Commissioner (Appeals) has not taken note of the said Rule, while directing the deposit of Rs. 20 laths. As per the learned advocate, his intention was drawn to the same. As regards endorsement, it stand clarified that same is in respect of VAT paid under Assam Value Added Tax Rules, 2005, which requires an assessee to endorse the said words on the tax in­voice. This issue was addressed by the Additional Commissioner having jurisdic­tion over the appellants factory by writing a letter to the Commissioner, Gu­wahati in response to the said query, vide his letter dated 2-2-2012 clarified that in compliance of Rule 32 of said Assam Value Added Tax Rules, 2005, duplicate copy of the invoice bear the word 'this copy does not entitle the holder a tax credit". Inasmuch the said endorsement was in respect of VAT paid in the Assam Laws Added Tax Rules, such endorsement cannot be adopted by the Excise au­thorities for denial of Cenvat Credit of Excise duty paid on the same. As such, it was found that the appellants have a good prima face case in its favour and no pre-deposit directions should have been made by the Commissioner (Appeals). In­asmuch as he has not decided the appeal on merits, the impugned or­der was set aside and  the matter was remanded to the Commissioner (Appeals) with directions to decide the appeal on merits without insisting on any pre-deposit.
Stay petition as also appeal gets disposed of in the above manner.
 
Decision:-  Appeal allowed by way of remand.

Comment:The crux of this case is that the manufacturer availing area based exemption notification allowing him to claim refund of duty paid out of PLA would not lead to conclusion that he is clearing  exempted goods on which CENVAT is not admissible to the purchaser. In view of the specific provision in Rule 12 of the CCR, 2004, thereby allowing credit of goods cleared by manufacturers availing area based exemption, the denial of credit was held to be illegal and improper. Moreover, endorsement on the invoice that no tax credit is available which was in compliance with VAT laws cannot lead to conclusion that credit of excise is also not admissible.

Prepared By:- Hushen Ganodwala
 

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