Whether Tribunal is right in holding that benefit of Notification No.6/2002-CE dated 01.03.2002 as amended, by reversing the credit of duty paid on “inputs” after utilizing the same for clearance of ceramic tiles though mandatory condition of the said not

PJ/Case Laws/2011-12/1234

Citation: 2011 (267) E.L.T. 461 (Guj.)

Case: Commissioner of C. Ex. & Customs versus Foram Glazed Tiles

Issue: “(a) Whether from the facts and circumstances of the present case, the Tribunal is right in holding that the respondent is eligible to claim benefit of Notification No.6/2002-CE dated 01.03.2002 as amended, by reversing the credit of duty paid on “inputs” after utilizing the same for clearance of ceramic tiles though the respondent has violated the mandatory condition of the said notification?
(b) Whether the Tribunal is right in law to accept the reversal of an entry of or repayment of the amount of CENVAT credit availed of by an assessee after the assessee is caught by the department acting in contravention of the Act and Rules applicable in the fact of the case?
(c) Whether the Tribunal is right in law in holding that though at the time of clearance of goods the assessee was not entitled to get the benefit of the exemption notification, subsequent conduct of the assessee of reversing the entry at the time of getting caught would exempt it from the liability of paying full duty?”

Brief Facts:The assessee is engaged in manufacture of Ceramic glazed tiles availed the benefit of concessional rate of duty under Sr. No.235 of Notification No.6/02-CE dated 1.3.2002 as amended by Notification No.45/2003-CE dated 14.05.2001 in respect of clearance of final product. The same was not available to the assessee as averred by the department on the ground that the benefit made available by way of exemption was conditional this wise that only if no credit of duty paid on the inputs used in or in relation to the manufacturer of such ceramic tiles is taken under Rule 3 and Rule 11 of Cenvat Credit Rules, 2002/2004, this exemption under the notification can be claimed. And as assessee had already taken credit of duty paid on input, consequentially under the notification, concessional rate of duties would not be available to assessee.
Department having found that this double benefit is already taken by the assessee while clearing goods had deemed it appropriate to issue show cause notice on assessee.
It is vital to note that the assessee, before this notice, had already reversed credit availed by him on input.
This show cause notice was contested before the Commissioner and the Commissioner vide his order in original , in detail examined admissibility of exemption notification in a situation when the condition of notification allegedly have been contravened, when he had already availed cenvat credit on the inputs used in the manufacture of ceramic tiles. And it upheld the demand made under the show cause notice.
This order in original was carried in appeal before CESTAT, which upheld the claim of assessee manufacturer, So the revenue filed this appeal before the High Court.

Appellant’s Contention:The Revenue urged that since this was a deliberate and intentional act of enrichment to defeat revenue, the order of the CESTAT requires to be scrutinized in detail and deserves to be set aside.

Respondent’s Contention:-The Respondent though admitted that reversal of Cenvat credit was done prior to the issuance of show cause notice. But that would not wipe of unjustifiable action of the Assessee according to the Revenue.

Reasoning of the Judgment:Respondent has availed benefit of the said notification and paid less percentage of duty which is 8%, instead of 16% payable, knowing fully well that they had since already availed cenvat credit on input made available to them, this benefit was not meant for them.
The High Court is of the opinion that with no question of law having arisen in this case coupled with the fact that there being no perversity at all in the order passed by the CESTAT, this appeal does not require to be allowed.
After looking at the content of show cause notice dated 1.6.2007 issued to the assessee where demand under Section 11A, 11AB and 11C of differential duty(central excise duty) interest and penalty respectively, under the Central Excise Act is raised, the same states that the exemption contained in the said notification is conditional and is available subject to fulfillment of the condition which stipulates that no credit of the duty paid on the inputs used in or in relation to the manufacture of such ceramic tiles ought to have been taken under Rule 3 or Rule 11 of the CENVAT Credit Rules 2002.
Rule 3 of the Cenvat Credits Rules, 2004 provides for the provisions under which the credit of various duties would be admissible to a manufacturer and as to how this credit can be utilised for payment of duty whereas Rule 11 of the said Rules speaks of deemed credit provisions.
The Commissioner has disallowed the claim of the manufacturer by further observing that “the question is to decide the demand for different central excise duty from the manufacturers who have misled the Revenue by taking cenvat credit on the inputs deliberately under the category of capital goods.”
The Commissioner also when confronted with judgement of the Apex Court in case of Chandrapur Magnet Wires(P) Ltd. v. Collector of C. Excise, Nagpur reported in 1996(81)ELT 3(SC), did not agree to apply the ratio laid down in the said case of manufacturers by distinguishing the same on facts and chose to uphold the demand proposed in the show cause notice.
The tribunal has essentially relied on judgement of Gujarat High Court in case of the Commissioner of Central Excise v. Ashima Dyecot Ltd. reported in 2008(232)ELT 580(Guj), wherein it is held that reversal of credit even if it is subsequent to clearance or even after credit taken, would amount to non-availment of credit.
It would be apt to mention at this stage that fervent contention is raised by revenue attempting to distinguish the facts of present case, from what was there in that case when this Court held in Ashima Dyecot Ltd.(supra), emphasizing that reversal in that case was prior to clearance of goods, which is not a case here. Here reversal was much after this was detected, albeit before the issuance of show cause notice.
The assessee had reversed the cenvat credit prior to issuance of show cause notice and while accepting said reversal, no challenge is made by the department to this act of respondent.
Admittedly, on non-availment of the credit, manufacturer is entitled to the benefits emanating from notification which is of payment of reduced duty of 8% interest instead of payment of 16% duty.
The Supreme Court is also in agreement with the conclusion in the decision of the CESTAT where it has held that issue is broadly covered by the decision of this Court in case of Ashima Dyecot Ltd.(supra).

Decision:Appeal is dismissed.

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