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PJ/Case Laws/2012-13/1355

Whether Credit to be reversed in respect of inputs sent by a DTA for job work and received after when it got converted into EOU?

Case:- DISHMAN PHARMACEUTICALS & CHEMICALS LTD. Vs. C.C.E., AHMEDABAD
 
Citation:-  2012 (286).E.L.T. 265 (Tri. - Ahmd.)
 
Brief Facts:-The appellant, which was a DTA unit, was converted to 100% EOU w.e.f. 27-6-03. When the appellant was a DTA unit they were receiving vari­ous inputs, on which they were availing the benefit of Cenvat credit. Such inputs were being sent by them to their job worker under the cover of [Rule 3(4)] challans. The said goods after being manufactured by the job worker were being returned to their factory. However, it was seen that as on 27-6-03, when the unit was con­verted into 100% EOU, certain inputs on which Cenvat credit was availed, which were sent to job worker, had not been received back by the appellants. Revenue entertained a view that in as much as the said received back goods (af­ter the appellant had become a 100% EOU), would be utilised by them in the manufacture of the final product, which would be cleared without payment of duty, the credit availed on the inputs is not admissible to them. On the above basis proceedings were initiated proposing denial of credit of Rs. 13,84,303/- availed in respect of such inputs. During the course of adjudication appellant took a stand that the inputs which were sent to the job worker stand received back by them and utilised in the manufacture of the final product which stands ultimately cleared without payment of duty in as much as the clearance was by a 100% EOU. Such final product cannot be said to be either exempted or attracting nil rate of duty so as to deny the benefit of Cenvat credit of duty availed on the inputs.
 
The Respondent while adjudicating, observed that in as much as the appellant had not received back the goods manufactured by the job worker before the conversion of DTA into 100% EOU, the duty is required to be paid by the appellant. The Respondent also observed that the situation could have been redeemed only if these processed goods were received back in the unit when it was still a DTA unit. The liability of the appellant to reverse the Cenvat credit arose imme­diately on the day when it was converted into a 100% EOU, because of the fact that the processed inputs had not been received back by them by that time.
 
On an appeal against the above order, Commissioner (Appeals) ac­cepted the appellant's stand that the goods cleared by 100% EOU cannot be held to be either exempted or chargeable to nil rate of duty so as to attract the provi­sions of Rule 6(1) of Cenvat Credit Rules, 2002. As such he held that the goods manufactured by the appellant under 100% EOU status were neither exempted nor chargeable to nil rate and their status cannot be equated with the goods cleared without payment of duty. Having held in favour of the assessee on the above issue, he held the confirmation of demand of duty by taking recourse to Rule 17 of Cenvat Credit Rules, 2002 which requires the duty should be paid by a 100% EOU only through account current which means PLA. As such the appellant cannot pay duty through cenvat credit and will not be in a position to utilise the cenvat credit at all. As such it does not make any sense to allow them to take the credit. He ac­cordingly upheld the demand but reduced the penalty. Aggrieved by this order appellant filed appeal before CESTAT. 
 
Appellant’s contention:-Learned advocate appearing for the appellant submits that apart from the fact that the reference and reliance to Rule 17 of Cenvat Credit Rules was beyond the scope of the allegations made in the show cause notice, the said rule is, in any case, not applicable to the facts of the instant case. The issue in­volved is as to whether the appellant is entitled to avail the modvat credit in re­spect of the inputs used in the manufacture of the final product which stands exported without payment of duty. Having held that such clearance cannot be equated with exempted goods or goods attracting nil rate of duty, the Commis­sioner (Appeals) was not justified in proceeding ahead to apply Rule 17 of Cen­vat Credit Rules. Clarifying on the above plea, the learned advocate submits that the said rule is applicable in respect of goods cleared by 100% EOU in DTA to pay duty out of PLA.
 
Respondent’s Contention:-  Learned DR appearing for the Revenue supports the impugned or­der of Commissioner (Appeals).
 
Reasoning of Judgment:-After appreciating the submissions made by both the sides, the Tribunal agree with the appellant. Admittedly the only issue was avail­ability of Cenvat credit in respect of the inputs used in the manufacture of the final product cleared for export. Having held in favour of the appellant on the above disputed issue, the Commissioner (Appeals) should have allowed the ap­peal. The issues whether such Cenvat credit would be of any use to the appellant or not was not the basis of the appellate proceedings, neither were the same sub­ject matter of adjudication. As such Commissioner (Appeals) has admittedly travelled beyond the scope of the allegations made in the show cause notice.
 
In any case the Tribunal has seen said Rule 17 of the Cenvat Credit Rules, which requires a 100% EOU to clear their goods in domestic tariff area on pay­ment of appropriate duty by debiting the account current. We really fail to un­derstand as to how the said rule can be referred to and invoked against the ap­pellant for deciding an altogether different issue of admissibility of Cenvat credit on the inputs. The same has no applicability.
 
Decision:-Set aside the impugned order and allow the appeal with consequential relief.
 
Comment:-The analogy drawn from this case is that the goods cleared by EOU cannot be equated with exempted goods or charged to nil rate of duty and so the provisions of Rule 6 cannot be invoked requiring the assessee to reverse the Cenvat Credit availed on inputs used. The Commissioner Appeals was to decide only whether reversal was required or not but instead Rule 17 was resorted to for upholding the demand. The order was liable to be set aside as the same traversed beyond the show cause notice.

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