Whether EOU debarred from availing credit on the ground that they can procure inputs duty free?

PJ/CASE LAW/2015-16/2702

Case:-UNIWORTH LIMITED VERSUS COMMR. OF CENTRAL EXCISE & SERVICE TAX, RAIPUR

Citation:- 2015 (315) E.L.T.307 (Tri. – Del.)

Brief Facts:-Stay application along with appeal has been filed against Order-in-Appeal No. 302/RPR-1/2013, dated 21-8-2013 which upheld Order-in-Original No. 325-327/CH:51/RPR/ADC, dated 30-11-2006 in terms of which Cenvat credit amounting to Rs. 1,38,59,015/- was disallowed and ordered to be recovered along with interest and penalty of Rs. 25 lakhs was also imposed. The show cause notice in this case was issued on 5-5-2006 and the period of dispute is September, 2004 to September, 2005.The facts briefly stated are as under :
The appellant are 100% EOU and procured goods duty free under Notification No. 1/95-C.E., dated 1-3-1995/Notification No. 22/2003-C.E., dated 31-3-2005. They also procured furnace oil on payment of duty and took Cenvat credit thereof. The adjudicating authority held that vide Circular No. 54/2004-Cus., dated 13-10-2004 the Board has stated that an EOU has an option either to procure the goods from DTA without payment of duty under CT-3 procedure or to procure the goods on payment of duty and avail Cenvat credit. Based thereon and in view of the fact that appellant have been procuring some goods duty free, the adjudicating authority held that as they were allowed only one of the two options they were debarred from procuring goods on payment of duty and so the credit of duty on furnace oil was disallowed.

Appellants Contention:-At the very outset, it needs to be mentioned that C.B.E. & C. Circulars do not have the legal force of statutory Rules or Notifications nor can they alter the scope thereof. It is seen that as per Rule 3 of the Cenvat Credit Rules, 100% EOUs are fully eligible to take Cenvat credit of duty paid on inputs used in or in relation to the manufacture of final products because this rule does not make any exception as regards 100% EOUs. Notification No. 18/2004-C.E. (N.T.), dated 6-9-2004 did not in any way affect the eligibility of the EOU for taking Cenvat credit; it only allowed them the facility to pay duty either by debit to the PLA or by debit to the Cenvat credit account. Prior to 6-9-2004, the EOUs could only pay duty through the PLA, Thus, the eligibility of EOUs for taking Cenvat credit of duty paid on the inputs received is in no way related to the issuance of Notification No. 18/2004-C.E. (N.T.).

Respondents Contention:-The Board has stated that an EOU has an option either to procure the goods from DTA without payment of duty under CT-3 procedure or to procure the goods on payment of duty and avail Cenvat credit. Based thereon and in view of the fact that appellant have been procuring some goods duty free, the adjudicating authority held that as they were allowed only one of the two options they were debarred from procuring goods on payment of duty and so the credit of duty on furnace oil was disallowed.

Reasoning Of Judgement:-At the very outset, it needs to be mentioned that C.B.E. & C. Circulars do not have the legal force of statutory Rules or Notifications nor can they alter the scope thereof. It is seen that as per Rule 3 of the Cenvat Credit Rules, 100% EOUs are fully eligible to take Cenvat credit of duty paid on inputs used in or in relation to the manufacture of final products because this rule does not make any exception as regards 100% EOUs. Notification No. 18/2004-C.E. (N.T.), dated 6-9-2004 did not in any way affect the eligibility of the EOU for taking Cenvat credit; it only allowed them the facility to pay duty either by debit to the PLA or by debit to the Cenvat credit account. Prior to 6-9-2004, the EOUs could only pay duty through the PLA, Thus, the eligibility of EOUs for taking Cenvat credit of duty paid on the inputs received is in no way related to the issuance of Notification No. 18/2004-C.E. (N.T.). While tribunal have already stated that Board Circulars do not have any binding effect on the adjudicating authorities, even so, it is seen that the said circular of the Board in Para 4 states as under :
“4. At present, EOUs (including STP/EHTP units) are allowed to import as well as procure goods from domestic tariff area without payment of duty. Therefore, there was no necessity for extending Cenvat credit facility to them. However, some EOU’s have to procure their raw materials on payment of duty also, (emphasis added). As a trade facilitation measure, it has been decided to allow EOUs (including STP/EHTP units) an option either to procure the goods from DTA without payment of duty under CT-3 procedure or to procure the goods on payment of duty and avail CENVAT credit. The credit could be utilised by them as per the Cenvat Credit Rules, 2004, including payment of duty on their DTA sales”.
A plain reading of the above para reveals that it does not necessarily mean that an EOU has to either procure all their goods duty free or procure all their goods on payment of duty. The sentence “Some EOU’s have to procure their raw materials on payment of duty also” contained in the said para makes it clear that EOUs can procure their raw material either duty free or on payment of duty. Be that as it may, the legal position is clear that the 100% EOU’s are eligible to take Cenvat credit of duty paid on the raw material procured by them for use in or in relation to the manufacture of their final product. Seen in this light the Board circular stating that the EOU’s have been allowed to avail Cenvat credit can only mean that now they can utilise the same. In the case of Tata Tea Limitedv. CCE, Cochin- 2006 (200)E.L.T.81 (Tri.-Bang.),the Tribunal held as under :
“Even though, the appellant is a 100% EOU, and could have obtained the input free of duty by following the procedure in Notification 1/95, they obtained the input on payment of duty and were allowed to take Cenvat Credit. These facts are not under dispute. Rule 5 of Cenvat Credit Rules, 2002 provides for refund of Cenvat credit taken on any input used in the manufacture of final products, which are cleared for export. There is nothing in the Rule which states that, this rule is not applicable to 100% EOU”.
In view of the foregoing, the appeal is allowed.

Decision:- Appeal allowed.

Comment:- The crux of the case is that there is no restriction for 100% EOU to procure some of their goods duty free and some goods on payment of duty. According to Rule 3 of the Cenvat Credit Rules, 100% EOUs are also equally eligible to take Cenvat credit of duty paid on inputs used in or in relation to the manufacture of final products and this rule also does not make any exception as regards 100% EOUs as they can also procure their raw material either duty free or on payment of duty. This view is also supported by the decision given in the case of Tata Tea Limitedv. CCE, Cochin.

Prepared By:- Neelam Jain

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PJ/CASE LAW/2015-16/2702

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