Whether credit deniable on duty paid goods procured when ARO was issued by DGFT in favour of appellants?

PJ/Case law/2014-15/2264

Case:-OLEOFINE ORGANICS (INDIA) PVT. LTD. v/s COMMR. OF C. EX., THANE-I

Citation:-2014(299) E.L.T. 91(Tri. – Mumbai)

Brief facts:- The facts of the case are the appellants are holder of Advance License / Advance Authorization. They are clearing their final product in the domestic market as well as export. Under the Advance Licence/Advance Authorization Scheme, the appellants either imports the raw material or procures it from local manufacturers under Advance Release Order (ARO) or Invalidation letter issued by DGFT, against the said Licence/Authorization. Appellants have procured certain raw material from M/s. VVF Ltd. and M/s. Godrej Industries Ltd. Sometimes these are procured in the normal course i.e. without any export related scheme. When the goods are procured locally under ARO or Invalidation Letter, it is deemed export for the supplier. When the appellants are procuring the goods under ARO or Invalidation letter issued by DGFT, supplier of the goods are entitled to clear the goods without payment of Excise Duty, by following the procedure under Notification No. 44/2001-C.E. (N.T.), dated 26-6-2001 as amended from time to time. For availing the benefit of said Notification, procedure is prescribed wherein the appellants had to initiate the process and based upon the process, supplier can clear the goods without payment of duty. Thus the procedure is a combined one involving appellants and suppliers. However, appellants and suppliers decided not to follow the procedure prescribed under the said Notification and instead paid the duty in spite of appellant transferring ARO/invalidation letter to suppliers. On receipt of the goods, appellants have taken the Cenvat credit of the duty paid by the suppliers. Impugned order demands the Cenvat credit so taken along with interest and penalty.

Appellant’s contentions:- The main contention of the ld. consultant to the appellants is that the appellants did not want or was not in a position to follow the procedure prescribed under Notification No. 44/2001-C.E. (N.T.), dated 26-6-2001 and, therefore, suppliers have not availed the benefit of duty free clearance. It was further contended that appellants cannot be compelled to follow the procedure and once they have not followed the procedure, they are not entitled to the benefit of Notification No. 44/2001-C.E. (N.T.), dated 26-6-2001. The duty has been paid by the suppliers of the raw material/input and they have availed the credit of the same. It is by now well established that duty paid by supplier cannot be denied as credit to the receiver of the goods. It was also the contention of the ld. Consultant that no action has been taken on the suppliers of the raw material. If duty was not payable, action should have been taken against them also. Ld. consultant also relied upon the Tribunal decision in the case of Shakun Polymers Ltd. v. Commissioner of C.Ex. & Cus. Daman, reported in 2009 (241)E.L.T.250 (Tri.-Ahmd.)on the same issue.

Respondent’s contentions:-Revenue’s contention is that since the appellant along with suppliers were entitled to clear the goods duty free by following the procedure prescribed under Notification No. 44/2001-C.E. (N.T.), dated 26-6-2001, the duty paid by the supplier has to be considered as deposit with Government and the appellants are not entitled to avail the credit of the same.
The ld. AR further argued that Notification No. 44/2001-C.E. (N.T.), dated 26-6-2001 specifically covers the clearances against Advance Licence/Advance Authorization. There is no dispute that the appellants have surrendered their Advance License/Advance Authorization and obtained ARO/invalidation letter, these documents have been given to the supplier and have not been taken back or cancelled by the appellants. Therefore, the goods have been procured by them from the suppliers under the said ARO’s/invalidation letter. Under these circumstances they were obliged to follow procedure prescribed under Notification No. 44/2001-C.E. (N.T.), dated 26-6-2001. Ld. AR further argued that appellants cannot follow the invalidation letter/ARO procedure partly (i.e. for Foreign Trade Policy purpose) and not follow the same for excise purpose. In view of this position no duty was payable by the supplier and they were not entitled to avail the Cenvat credit. Ld. AR further stated that supplies made by the suppliers are eligible for deemed credit benefit which involved refund of terminal excise duty. Further, suppliers have paid excise duty in order to shift the accumulated Cenvat credit to the appellants.

Reasoning of judgment:- The Hon’ble Tribunal have considered the submissions of the both the sides. There is no dispute that appellants had taken invalidation letter/ARO. These documents were handed over to the suppliers who in turn would have taken the benefit available to them. These have not been cancelled or withdrawn by the appellants. However, it is also observed from the impugned orders itself that the suppliers have not availed the refund of terminal excise duty. They also find from the documents submitted along with the appeal papers that the suppliers have in the relevant years paid very substantial duty from PLA and, therefore, the Revenue’s contention regarding shifting of credit does not hold water. They have asked the ld. AR to show any specific provisions under Central Excise law requiring the appellants to clear the goods in the said situation under Notification No. 44/2001-C.E. (N.T.), dated 26-6-2001 only. They have also seen the Notification and the connected rules. These rules do not require the appellants to necessarily clear the goods duty free by following the procedure under Notification No. 44/2001-C.E. (N.T.), dated 26-6-2001. They also note that overall there is no loss to the Revenue as the credit is being taken of the duty paid. If the appellants could have followed the Notification No. 44/2001-C.E. (N.T.), dated 26-6-2001, no duty would have been paid by the suppliers and appellants would also have not got any credit. They also note that in the impugned order, Tribunal judgment in the case of M/s. Reliance Industries Ltd. reported in 2009 (244)E.L.T.254 (Tri.-Ahd.)have been cited with lot of force. They have gone through the said judgment and they find that the issue involved in the said judgment was different and are not relevant to the facts of the present case. In fact, in the case of M/s. Reliance Industries Ltd., duty was being paid by the supplier and no objection was raised by the Department. Objection raised was relating to valuation of supplies made. They also find the issue is exactly the same as decided by the Tribunal in the case of Shakun Polymers Ltd. v. CCE reported in 2009 (241)E.L.T.250 (Tri.-Ahd.). They do not find any reason not to follow the same. In view of the above, they allow both the appeals.

Decision:- Appeals allowed.

Comment:- The analogy of the case is that there is no embargo in procuring duty paid goods even if the assessee is eligible to procure duty free goods by following the procedure prescribed in notification 44/2001-C.E.(N.T.), dated 26-6-2001. The reason for the same is that when supplier has paid duty and no objection has been raised by the revenue department for payment of duty by supplier, then the credit cannot be denied to the assessee as there is no loss of revenue because the situation is revenue neutral.

Prepared by: Monika Tak

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PJ/Case law/2014-15/2264

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