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PJ/CaseStudy/2016-17/119
04 November 2017

Eligibility of credit on exempted goods on which no duty was required to be paid.


CASE STUDY

 

Prepared By: CA Akanksha Anchaliya

 

Introduction:-


M/s. UMA CONVERTER PRIVATE LIMITED (hereinafter referred to as assessee) is the manufacturer of Plastic Film falling under Chapter 39 of the First schedule to the Central Excise Tariff Act, 1985 having unit at Gandhinagar, Gujarat. The Assessee had availed Cenvat Credit on ‘Engraved Printing Cylinder’ and ‘Copper Engraved Cylinder’ which have been contended to be unconditionally exempt from the levy of central excise duty under notification no. 49/2006-CE dated 30.12.2006. It has been alleged in this case that as no excise duty was required to be paid by the supplier of goods, accordingly no cenvat credit could have been availed by the assessee.  The adjudicating authority confirmed the allegations of the show cause notice and passed order upholding the demand of cenvat credit along with interest and penalty. The assessee also filed appeal to the Commissioner Appeals but could not succeed there. Subsequently, the assessee filed an appeal before the tribunal where the appeal was allowed in their favour. The outcome of the Final Order passed by the Tribunal is the subject matter of the present case study.

 

M/S UMA CONVERTER PVT. LTD.

 [FINAL ORDER NO. A/13058/2017 DATED 04.10.2017]

 

Relevant Legal Provisions:

i)      Section 5A(1A) of the Central Excise Act, 1944

ii)             Board Circular no. 940/01/2011-CX dated 14.01.2011

iii)            Rule 3 of the Cenvat Credit Rules, 2004

iv)           Section 11D of the Central Excise Act, 1944

v)            Notification no. 49/2006-CE dated 30.12.2006

vi)           Notification no. 175/86-C.E. dated 01.03.1986

vii)          Notification no. 111/88-CE dated 01.03.1988

Issue Involved:-

Eligibility of credit on exempted goods on which no duty was required to be paid.

Brief Facts:-

The assessee was served with a show cause notice no. V.39/03-37/SCN-DEM/2014-15 dated 08.09.2014 wherein it was alleged that cenvat credit amounting to Rs. 4,85,567/- on ‘Engraved Printing Cylinder’ and ‘Copper Engraved Cylinder’ has been wrongly availed during the period from 01.04.2010 to 28.02.2011 because the said goods were unconditionally exempt from the levy of central excise duty under notification no. 49/2006-CE dated 30.12.2006. Accordingly, it was alleged that as no excise duty was required to be paid, no cenvat credit could have been availed by the assessee. However, the submissions made by the assessee were not considered by the adjudicating authority and the impugned order in original no. AHM-CEX-003-DC-01-2015 dated 22.01.2015 was passed thereby confirming the demand of duty along with interest and penalty. Thereafter, the assessee filed appeal before the Commissioner Appeals by complying with the condition of mandatory pre-deposit. However, the submissions made in the grounds to the appeal memorandum and during the course of personal hearing were not completely adhered to and the impugned order in appeal no. Order-in-Appeal No. AHM-EXCUS-003-APP-052-15-16 dated 11.12.2015 was passed upholding the recovery of Cenvat Credit along with interest vide the impugned order in original. However, the Commissioner (Appeals) has set aside the imposition of penalty on the ground that the assessee had taken the credit of duty paid inputs on the bonafide belief that they were eligible for such credit as the goods were received and used by them. Aggrieved by the order in appeal, the assessee filed appeal to the Tribunal.  

 

Appellant’s Contentions:- The assessee made following submissions before the appellate authority:-

1)            The assessee submit that the impugned order in appeal (hereinafter referred to as the impugned order) passed by the learned Commissioner (Appeals) to the extent it confirms recovery of Cenvat along with interest is wholly and totally erroneous and is liable to be set aside.

 

2)            At the outset, the assessee wish to point out that the impugned order in appeal upholding the order in original that is passed beyond the allegations levelled in the show cause notice is not at all tenable. The assessee points that the show cause notice was issued to them by merely placing reliance on the provisions of section 5A(1A) of the Central Excise Act, 1944 and Board Circular no. 940/01/2011-CX dated 14.01.2011. However, the impugned order in original and the order in appeal have confirmed the recovery of cenvat credit by contending that as per Rule 3 of the Cenvat Credit Rules, 2004, the cenvat credit can be taken only of the amount of excise duty paid as specified under the Central Excise Tariff Act, 1985 and as there was exemption to the goods on which credit was taken by the assessee, no cenvat credit could have been taken by them. This is for the reason that the supplier of goods has not paid duty and rather the amount paid is to be treated as deposit. It is submitted that no such allegation was made in the impugned show cause notice and reliance was placed on the provisions of section 5A (1A) read with Board Circular. As such, the learned adjudicating authority has travelled beyond the four corners of the allegations levelled in the show cause notice and has confirmed the cenvat credit demand by resorting to fresh grounds. Hence, the impugned order in appeal confirming the order in original has also travelled beyond the scope of the show cause notice and is liable to be set aside. This view is also supported by decision given in the case of JAY AR ENTERPRISES VERSUS COMMISSIONER OF CUSTOMS (SEA), CHENNAI [2007 (210) E.L.T. 459 (Tri. -Chennai)]. The verdicts of hon’ble Chennai Tribunal are produced as follows:-

 

Order beyond show cause notice not sustainable - DEPB credit -Denial of - Show cause notice not proposed the denial hence, direction for debit of DEPB credit is beyond the scope of show cause notice, hence, not sustainable.”

The analysis of above decision makes it clear that where the order is passed on the grounds other than what are proposed in the show cause notice, it is not legally viable. Similar decision was given in the following cases:-

·         BHAGWATI SILK MILLS VERSUS COMMISSIONER OF CENTRAL EXCISE, SURAT [2006 (205) E.L.T. 182 (Tri. - MUMBAI)]

 

·         M/s Oswal Paper & Allied Industries Vs CCE, Jalandhar [2010-TIOL-678-CESTAT-DEL]

·         Caliber Point Business Solutions Ltd Vs CST, Mumbai [2010-TIOL-554-CESTAT-MUM.]

In the above referred cases, it was held that the order should a

lign with the allegations of the show cause notice. If the order is not passed in accordance with the grounds specified in the show cause notice, it is not tenable in the eyes of the law. It is submitted that the ratio of the above cited decisions is equally applicable in the present case as the impugned order in original has been passed beyond the provisions invoked in the show cause notice. Therefore, the order in appeal upholding the order in original is not sustainable at the outset.

 

3)            In continuation to the above, the assessee submits that even otherwise, the allegation that they have wrongly availed the cenvat credit on the ‘Engraved Printing Cylinder’ and ‘Copper Engraved Cylinder’ in violation of the provisions of Rule 3 of the Cenvat Credit Rules, 2004 is not tenable. The contention that the supplier has not paid excise duty is not viable because to the best of assessee’s knowledge, no proceedings have been initiated against the supplier of such goods as regards the fact that the amount paid as excise duty is not duty and is deposit of amount collected by the buyers. Moreover, in the invoices raised by the suppliers, it is clearly reflected that the excise duty has been collected from the assessee. Not only this, even the excise returns filed by the supplier of goods indicate payment of excise duty and not any other amount in terms of section 11D of the Central Excise Act, 1944. Therefore, mere presumption of the learned adjudicating authority that the amount paid by the supplier of goods was not ‘excise duty’ so as to enable availment of credit by the assessee is totally absurd and misconceived. 

 

Aligning with the above, the assessee also wish to submit that if the provisions of Rule 3(1)(i) of the Cenvat Credit Rules, 2004 are pursued, it is found that a manufacturer or producer of final products or a provider of taxable service shall be allowed to take credit of- the duty of excise specified in the First Schedule to the Excise Tariff Act, leviable under the Excise Act; thereby meaning that the credit can be availed of the excise duty specified in the Central Excise Tariff Act. The fact that there is exemption for certain excisable goods by virtue of exemption notification issued under section 5A(1) of the Central Excise Act, 1944 is a different thing. If the notification no. 49/2006-CE dated 30.12.2006 is examined, it will be observed that the exemption is being granted from so much of the duty of excise specified under the First Schedule of the Central Excise Tariff Act, as is in excess of the amount calculated at the rate specified in column (4) of the table; thereby meaning that specifying ‘NIL’ rate against chapter sub-heading 844250 in the exemption notification does not amounts to duty of excise being specified as “NIL” for the said product. The rate of excise duty for the product of chapter sub-heading 844250 during the relevant period of time in the Central Excise Tariff Act, 1985 was specified as “10%”. However, it was due to exemption notification no. 49/2006-CE dated 30.12.2006 that there was full exemption to the product of chapter sub-heading no. 844250.

 

In view of the above discussion, the assessee wishes to clarify that the contention of the impugned order in appeal that the duty of excise for the product was mentioned as NIL under the Central Excise Tariff Act is totally erroneous. It is submitted that the rate of excise duty mentioned in the Central Excise Tariff was “10%” and so there was no violation of the provision of Rule 3(1)(i) of the Cenvat Credit Rules, 2004. The revenue department cannot contend that as cenvat credit under Rule 3 is available of duty of excise specified in the First Schedule to the Central Excise Tariff Act, and in the present case, the duty was “NIL” so the credit could not have been availed by the assessee. The above contention of the impugned order in appeal is totally wrong and is liable to be set aside.

 

4)            It is further contended that in the present case, certain amount has been paid by the manufacturer terming it as duty but mere payment of any sum in the government account cannot be termed as duty. Furthermore, reliance has been placed on the decision given by the Supreme Court in the case of Bonanzo Engg. & Chemical P. Ltd. Vs Commissioner of Central Excise [2012 (277) E.L.T. 145 (S.C.)] wherein it was held that payment of duty on exempted goods does not makes them liable to duty. Thus, mere payment of sums cannot be termed as duty. Therefore, in accordance with the above, it was concluded that the sum paid by the manufacturer on the ‘Engraved printing cylinder’ and ‘Copper engraved cylinder’ cannot be and shall not be termed as ‘duty’. In this respect, the assessee submits that the learned adjudicating authority and the first appellate authority is trying to justify the denial of cenvat credit to the bonafide purchaser by placing half hearted reliance on the above cited Supreme Court judgment. Before distinguishing the above cited case, the brief facts of the case are summarized to better appreciate the ratio of the above cited decision as follows:-

 

In the above cited decision, the issue involved was computation of aggregate value of the first clearances of the specified goods for the purpose of granting small scale unit exemption under the erstwhile notification no. 175/86-C.E. dated 01.03.1986. It was specified in Explanation no. II of this notification that for the purposes of   computing the aggregate value of clearances under this Notification, the clearances of any excisable goods, which are chargeable to nil rate of duty or which are exempted from the whole of the duty of excise leviable thereon by any other Notification [not being a notification where exemption from the whole of the duty of excise leviable thereon is granted based upon the value or quantity of clearances made in a financial year] issued under Sub-rule [1] of Rule 8 of the said rules, or under sub-section [1] of Section 5A of the Central Excises and Salt Act, 1944, shall not be taken into account. However, the assessee in this case, had mistakenly paid excise duty on clearance of certain goods falling under chapter 84.37 even when there was exemption from the levy of excise duty for the said goods under notification no. 111/88-CE dated 01.03.1988. Accordingly, the Tribunal had concluded that the value of clearances of goods falling under heading 84.37 being cleared on payment of duty has to be taken into account for computing the value of clearances for the purpose of small scale exemption notification. However, it was held by the Apex Court that merely because the assessee by mistake pays duty on the goods which are exempted from such payment, does not mean that the goods would become goods liable for duty under the Act. Consequently, the matter was remanded to the adjudicating authority without taking into account the excess duty paid by the assessee for goods eligible for exemption under notification no. 111/88-CE dated 01.03.1988.

 

It is submitted that the above cited facts of the case are entirely different from the issue under consideration in the present appeal. The assessee submits that in the case relied in the impugned order, the issue of credit availment by the downstream manufacturer if the product is unconditionally exempted was not considered. Moreover, the issue was entirely different and pertained to computation of aggregate value of clearances for the purpose of small scale industries exemption. As such, merely by placing reliance on certain phrases that were used in entirely different context, the impugned order in appeal cannot confirm the recovery of cenvat credit rightly availed by the assessee. On the contrary, the assessee submits that they have placed reliance on two Supreme Court judgments that are clearly applicable on the issue under consideration. The assessee submits that the reliance placed by the impugned order in original on decision which is not relevant in the facts and circumstances of the present case should be rejected and the benefit of the two Supreme Court decisions relied upon by the assessee and discussed below should be extended to them. 

 

It is submitted that the manufacturer of ‘Engraved Printing Cylinder’ and ‘Copper Engraved Cylinder’ has violated the provisions of section 5A(1A) of the Central Excise Act, 1944 and has collected excise duty on products which were unconditionally exempt. The assessee submits that when the payment of excise duty has not been objected or disputed at the end of manufacturer of such goods, the cenvat credit cannot be denied to the bonafide downstream manufacturer purchasing the said goods on payment of excise duty. In this respect, reliance is placed on two judgments rendered by the Hon’ble Supreme Court wherein it has been held that when revenue department has not objected payment of excise duty at the end of supplier of goods, they cannot contest credit availment at the end of recipient of such goods.

·         COMMISSIONER OF CENTRAL EXCISE & CUSTOMS VERSUS MDS SWITCHGEAR LTD. [2008 (229) E.L.T. 485 (S.C.)] wherein it has been held that:-

Cenvat/Modvat - Quantum of credit - Inflation of value of intermediate goods by supplier - Assessee alleged to have raised value of semi-finished goods by adding Modvat element and rounding off the value to higher figure so as to pass on excess Modvat credit - Tribunal held that rules entitled the recipient manufacturer to avail of benefit of duty paid by supplier manufacturer - Quantum of duty already determined by jurisdictional officers of supplier unit cannot be contested or challenged by officers in charge of recipient unit - Tribunal’s order upheld - Rule 3 of Cenvat Credit Rules, 2004. [paras 7, 9]

It is submitted that the above cited decision of the Supreme Court is aptly applicable in the present case because no objection as regards payment of excise duty has been raised at the end of supplier unit and only credit availment has been disputed at the recipient unit. It is submitted that when excise duty payment has not been contested for supplier units, it tantamounts to acceptance of duty discharged by the supplier of goods and so the credit availment cannot be disputed at the recipient unit. 

 

Furthermore, reliance is also placed on the decision pronounced by the jurisdictional High Court of the assessee and further confirmed by the Supreme Court as follows:-

 

·         COMMISSIONER OF C. EX., AHMEDABAD-III VERSUS NAHAR GRANITIES LTD. [2014 (305) E.L.T. 9 (Guj.)] wherein Gujarat High Court has held as follows:-

Cenvat credit - Availment of, on inputs - Challenge to, on ground that manufacturer was not required to pay duty as goods were exempted from payment thereof - HELD : Under Rules 3 and 4 of Cenvat Credit Rules, 2004, a manufacturer would be entitled to avail Cenvat credit in respect of inputs used for manufacture of a final product or when taxable service provided, to take credit of the excise duty specified in First Schedule to Central Excise Tariff - In the instant case, the respondent purchased inputs and utilised the same for manufacture of a final product - Such inputs were duty paid - Thus, Rules 3 and 4 ibid would enable him to avail the Cenvat credit - It is a different thing that the supplier of inputs to the respondent paid excise duty under mistaken belief, and such amount deposited by the original manufacturer would not partake the character of excise duty - However, when the Department did not dispute the classification by manufacturer and accepted the declaration and duty, Cenvat credit cannot be declined to the purchaser who otherwise fulfilled all conditions for availing Cenvat credit - Thus, availment of credit, upheld - Rules 3 and 4 ibid. [paras 7, 8, 9]

THE ABOVE CITED GUJARAT HIGH COURT DECISION WAS APPEALED BY THE REVENUE DEPARTMETN IN SUPREME COURT IN SLP 18618/2014 AND ON 24.11.2014, THE SUPREME COURT DISMISSED THE APPEALS FILED BY THE REVENUE DEPARTMENT.

In light of the above cited judgment of Supreme Court and Gujarat High Court, it is very much clear that the duty payment once accepted at the supplier’s end cannot be contested by way of recovering credit at the recipient’s end. Moreover, the Gujarat High Court has even held that it is altogether a different thing that the duty paid by mistake would not partake the character of excise duty but cenvat credit cannot be denied to the bonafide purchaser who otherwise fulfilled all the conditions for availing cenvat credit. As the facts and circumstances of the above cited decision are very much similar to the present case, its benefit should have been extended to the assessee. However, the learned adjudicating authority and the first appellate authority has ignored the judicial principle when jurisdictional High Court decision on the even issue was already decided in favour of the assessee and chose to confirm the demand for recovery of cenvat credit by placing reliance on an altogether different decision. As such, the act of the adjudicating authority and the appellate authority is not appreciable and the impugned order in appeal should be set aside.

 

5)            The impugned order in appeal has further alleged that the capital goods ‘Engraved Printing Cylinder’ and ‘Copper Engraved Cylinder’ were unconditionally exempt from the Central Excise Duty under notification no. 49/2006-CE dated 30.12.2006 till 28.02.2011. Moreover, the impugned order has emphasized on the provision contained in sub-section (1A) of the section 5A wherein it has been declared that where an exemption under sub-section (1) in respect of any excisable goods from the whole of the duty of excise leviable thereon has been granted absolutely, the manufacturer of such excisable goods shall not pay the duty of excise on such goods. It has been contended that on close reading of section 5A(1A) makes it clear that by usage of the word “shall”, the sub-section makes it emphatic that in case of absolute exemption from payment of duty to any excisable goods, the manufacturer of such goods cannot have the option to pay the duty. In the present case, since no duty was prescribed for the said goods, the manufacturer was not supposed to pay duty. In this respect, the assessee wishes to point out that all the above allegations pertain the manufacturer of ‘Engraved Printing Cylinder’ and ‘Copper Engraved Cylinder’ who failed to comply with the provisions of section 5A(1A) of the Central Excise Act, 1944. However, for all the above defaults on the part of the manufacturer, the Cenvat credit availed bonafidely cannot be resorted to be recovered from them along with interest. The submission made by the assessee that there is no express provision under section 5A(1A) of the Central Excise Act, 1944 as regards non-admissibility of cenvat credit to the downstream manufacturers has been simply ignored without even discussing and distinguishing the same. The assessee reiterate that when there is no express statutory provision for recovery of cenvat credit of duty paid by bonafide purchasers pertaining to goods that were unconditionally exempt under section 5A(1A), the present excise duty demand confirmed against them along with interest is not at all sustainable. It is submitted that if section 5A of the Central Excise Act is perused, it is found that there is no statutory provision to recover the cenvat credit availed by the downstream manufacturer if the inputs/capital goods were unconditionally exempt from the levy of excise duty and the supplier of inputs/capital goods has charged excise duty on the said goods. The provision of section 5A only stipulates that a manufacturer should not pay duty on such goods that are unconditionally exempted. For better analysis of the section 5A of the Central Excise Act, the said section is produced for convenient reference as follows:-

 

“Section 5A. Power to grant exemption from duty of excise.-

 

(1)   If the Central Government is satisfied that it is necessary in the public interest so to do, it may, by notification in the Official Gazette exempt generally either absolutely or subject to such conditions (to be fulfilled before or after removal) as may be specified in the notification, excisable goods of any specified description from the whole or any part of the duty of excise leviable thereon:

 

Provided that, unless specifically provided in such notification, no exemption therein shall apply to excisable goods which are produced or manufactured —

 

(i) in a free trade zone or a special economic zone and brought to any other place in India; or

 

(ii) by a hundred per cent export-oriented undertaking and brought to any place in India.

 

Explanation. — In this proviso, “free trade zone”, “special economic zone” and “hundred per cent export-oriented undertaking” shall have the same meanings as in Explanation 2 to sub-section (1) of section 3.

 

(1A)   For the removal of doubts, it is hereby declared that where an exemption under sub-section (1) in respect of any excisable goods from the whole of the duty of excise leviable thereon has been granted absolutely, the manufacturer of such excisable goods shall not pay the duty of excise on such goods.

 

(2) If the Central Government is satisfied that it is necessary in the public interest so to do, it may, by special order in each case, exempt from payment of duty of excise, under circumstances of an exceptional nature to be stated in such order, any excisable goods on which duty of excise is leviable.

 

(2A) The Central Government may, if it considers it necessary or expedient so to do for the purpose of clarifying the scope or applicability of any notification issued under sub-section (1) or order issued under sub-section (2), insert an explanation in such notification or order, as the case may be, by notification in the Official Gazette at any time within one year of issue of the notification under sub-section (1) or order under sub-section (2), and every such explanation shall have effect as if it had always been the part of the first such notification or order, as the case may be.

 

(3)  An exemption under sub-section (1) or sub-section (2) in respect of any excisable goods from any part of the duty of excise leviable thereon (the duty of excise leviable thereon being hereinafter referred to as the statutory duty) may be granted by providing for the levy of a duty on such goods at a rate expressed in a form or method different from the form or method in which the statutory duty is leviable and any exemption granted in relation to any excisable goods in the manner provided in this sub-section shall have effect subject to the condition that the duty of excise chargeable on such goods shall in no case exceed the statutory duty.

 

Explanation. — “Form or method”, in relation to a rate of duty of excise means the basis, namely, valuation, weight, number, length, area, volume or other measure with reference to which the duty is leviable :

 

(4)  Every notification issued under sub-rule (1), and every order made under sub-rule (2), of rule 8 of the Central Excise Rules, 1944, and in force immediately before the commencement of the Customs and Central Excises Laws (Amendment) Act, 1988 (29 of 1988) shall be deemed to have been issued or made under the provisions of this section and shall continue to have the same force and effect after such commencement until it is amended, varied, rescinded or superseded under the provisions of this section.

 

(5)  Every notification issued under sub-section (1) or sub-section 2(A) shall,—

 

(a)  unless otherwise provided, come into force on the date of its issue by the Central Government for publication in the Official Gazette;

 

(b)  also be published and offered for sale on the date of its issue by the Directorate of Publicity and Public Relations, Customs and Central Excise, New Delhi, under the Central Board of Excise and Customs constituted under the Central Boards of Revenue Act, 1963 (54 of 1963).

 

(6)  Notwithstanding anything contained in sub-section (5), where a notification comes into force on a date later than the date of its issue, the same shall be published and offered for sale by the said Directorate of Publicity and Public Relations on a date on or before the date on which the said notification comes into force.”

 

On perusal of the above section, it is crystal clear that the statutory provision of section 5A only mandates the manufacturer to avail the unconditional exemption if applicable on the products manufactured by him. It nowhere states that if unintentionally or due to ignorance, the duty is charged by the manufacturer even if the products manufactured by him are unconditionally exempt, the cenvat credit of duty would not be available to the downstream manufacturer. Hence, in the absence of any such provision, the rightly and legally availed cenvat credit cannot be denied to the assessee.

 

6)            It is submitted that it is also worth observing that the revenue department has not made the supplier of such goods i.e., M/s Lippi Systems Ltd., Shilp Gravures Ltd., Sun Electro Gravures and Shree Raj Roto India co-noticees to the present show cause notice. It is submitted that instead of issuing show cause notice to the assessee, the show cause notice should have been issued to the said suppliers who have charged excise duty from them even when the same was unconditionally exempt because excise duty is indirect taxation and the liability to discharge the same is on the manufacturer of excisable goods. The assessee being the purchaser have no option but to bear the burden of excise duty charged by the supplier for the goods supplied to them. They submit that when the statue casts the liability on the manufacturer to effectively discharge excise duty, it is the obligation of manufacturer to be aware of the statutory provisions. If the manufacturer has not complied with the statutory provisions of section 11A, the proceedings ought to have been initiated against the manufacturer of such goods and not on the downstream manufacturers purchasing the goods of such manufacturer. The initiation of credit recovery proceedings against the assessee depicts as if the main culprit is being relieved while the innocent and bonafide purchasers are being trapped with huge credit recovery demands with no fault on their part. The assessee submits that the sole reason for not taking any action against the said suppliers by the revenue department is that the situation is in revenue department’s favour as they have received excise duty on goods on which were unconditionally exempt. However, when it comes to grant of cenvat credit to the purchaser of such goods, proceedings of credit recovery have been initiated along with interest. The assessee submits that such a dubious stand taken by the revenue department is total harassment. Also, by initiating the credit recovery proceedings against the assessee, the revenue department is trying to recover double excise duty on the said goods because no refund has been granted in respect of duty wrongly paid on such goods and on the contrary, the credit taken by the assessee is also proposed to be recovered from them. The assessee submits that such an act is totally against the principles of “Cenvat Credit Framework” because the government should not have any problem in allowing credit of excise duty paid and as such, there is no revenue loss to the government. It has already been submitted earlier that the revenue department is not doubting or questioning the legality of eligibility of cenvat credit on said goods. The only objection being raised is that the supplier of goods has paid excise duty even when there was unconditional exemption to such goods. The assessee submits that such objection if confirmed will only lead to harassment of bonafide assessee. Therefore, the impugned order in appeal that has been passed without invoking proper statutory provisions is devoid of any merits and deserves to be quashed. 

 

7)            Without prejudice to the above submissions, the assessee submits that even if the supplier of goods has paid excise duty at higher rate than specified in the statue, then too, the recipient of such goods cannot be denied the cenvat credit on the grounds that the excess amount is not “duty of excise”. In this regard, reliance is placed on the following decisions:-

 

·         NAHAR INDUSTRIAL ENTERPRISES LTD. VERSUS CCE, CHANDIGARH [2007 (5) S.T.R. 385 (Tri. - Del.)]:-

Cenvat/Modvat - Credit restriction - Supplier of inputs liable to pay duty at the rate of 8%, however paid duty at the rate of 9.2% - When revenue is not objecting to payment of duty @ 9.2% at the time of clearance of goods, credit cannot be restricted to 8% at the end of assessee who are recipient of inputs - Rules 3 and 12 of Cenvat Credit Rules, 2002. [para 4}

·         JOHNSON & JOHNSON LTD. VERSUS COMMISSIONER OF C. EX., AURANGABAD [1999 (112) E.L.T. 901 (Tribunal)]:-

Modvat - Duty actually paid to be allowed as credit - In consequence of wrong classification under Customs Tariff sub-heading more duty paid that what ought to have been paid - Modvat credit taken of actual duty paid - Show cause notices issued on the ground that only the correct duty leviable can be taken as credit and not the excess duty paid - Held, since Notification No. 5/94-C.E. allows credit of specified duty paid on the inputs the duty actually paid to be allowed as credit and not to be restricted to what ought to have been paid - Rule 57A of Central Excise Rules, 1944.

·         KERALA STATE ELECTRONIC CORPN. VERSUS COLLECTOR OF C. EX., KOCHI [1996 (84) E.L.T. 44 (Tribunal)]:-

Modvat - Inputs not re-assessable to duty - Modvat credit to be allowed as per the amount of duty indicated in the duty paying documents - Duty whether short paid or excess paid on inputs not relevant for factory - Excise authorities have no jurisdiction to re-assess the duty on inputs received - Rules 57A, 57G and 57E of Central Excise Rules, 1944 - Sections 11A and 11B of Central Excises and Salt Act, 1944 - Notification No. 177/86-C.E.

·         COMMISSIONER OF CENTRAL EXCISE, INDORE VERSUS M.P. TELELINKS LTD.[ 2004 (178) E.L.T. 167 (Tri. - Del.)]:-

Cenvat/Modvat on inputs - Not deniable when duty paid nature of inputs and clearance of finished goods on payment of duty not disputed - Department levying and collecting duty on the goods cleared from the factory, credit not deniable on the ground that processes undertaken on the inputs not amount to manufacture - Rule 57AB of erstwhile Central Excise Rules, 1944 - Rule 3 of Cenvat Credit Rules, 2004. - If the department levies and collects the Central Excise duty on the goods removed from the factory they cannot claim for the purpose of allowing Cenvat credit that the process of manufacture had not taken place. If the process of manufacture had not taken place, the question of duty would not arise. Substantial force found in the assessee’s submission that the credit has been utilised in removing the inputs as such under the provisions of Rule 57AB(1C) ibid. [para 4]

·         COMMISSIONER OF C. EX., VADODARA-I VERSUS HYLITE CABLES [2007 (212) E.L.T. 284 (Tri. - Ahmd.)

Cenvat/Modvat - Availment of - Duty paid by supplier of inputs - Department claiming that process undertaken by supplier did not amount to manufacture, and sum paid by him was not duty, and recipient of inputs was not entitled to its credit - But that sum neither refunded to him nor disputed by Department - Credit allowed to input receiver, especially as situation was Revenue neutral - Rule 3 of Cenvat Credit Rules, 2004. [para 3]

In all the above cited decisions, it has been concluded that the credit of duty paid by the purchaser is admissible to him as far as the credit is rightly availed on the strength of proper invoice irrespective of the fact that the supplier has paid excess duty. In the present case also, the supplier of goods has paid excise duty although the goods were exempted and there is also no doubt as regards receipt of the goods and use in the manufacture of the said goods in the final products cleared by the assessee on payment of excise duty. Therefore, the ratio of the above cited decisions should be extended and the impugned order in appeal should be quashed. 

 

8)            The impugned order has placed reliance on the Board’s Circular no. 940/01/2011-CX dated 14.01.2011 and has contended that the manufacturer cannot opt to pay duty in respect of unconditionally fully exempted goods and the cenvat credit of such amount utilised by the downstream units also needs to be recovered in terms of Rule 14 of the Cenvat Credit Rules, 2004. In this respect, the assessee submits that the clarifications that are inconsistent with the statutory provisions and which defeats the intention of the legislature and is also contrary to the judgments pronounced by Supreme Court and High Court are not legally tenable. It has already been detailed in the preceding paragraphs that there is no statutory provision in section 5A that the cenvat credit of duty paid on goods which were unconditionally exempted is not admissible to the downstream manufacturers. Not only this, when the excise duty payment has not been disputed at the supplier’s end, denial of cenvat credit to the recipient is not at all legal. In view of the same, the impugned show cause notice and the order has placed erroneous reliance on the said clarification which is contradictory to the statutory provisions and law laid down by the Supreme Court. Even otherwise, the assessee submits that the clarifications issued by the Board are not binding on the assessees and they have the liberty to disagree and challenge the same. This has been held in the case of BIRLA JUTE AND INDUSTRIES LTD. versus ASSISTANT COLLECTOR OF C. EX. [1992 (57) E.L.T. 674 (Cal.)] which was further approved by Hon’ble Supreme Court on 2005 (179) ELT 272(Supreme Court). In this case it was held that Board Circulars are not binding on the assessees and they may opt not to follow these Circulars. The verdicts of hon’ble Calcutta High Court are produced as follows:-

 

“Departmental circulars and trade notices - Binding on departmental officers but not binding on quasi-judicial authorities and assessees - Court can compel Central Excise officers to comply with such instructions as are for benefit of assessee - Section 37B of Central Excises and Salt Act, 1944 - Rule 233 of Central Excise Rules, 1944.”

As such, the circulars are not binding on the assessees. Therefore, the impugned order in appeal should be set aside and no demand should be confirmed on the assessee.

9)            The impugned order has held that in the instant case the manufacturer of the ‘Engraved printing cylinder’ and ‘Copper engraved cylinder’ has paid an amount terming it as ‘duty’ on his own volition which was not required to be paid by them. In the instant case, the payments made by the manufacturer cannot be termed as duty since the duty prescribed under the chapter sub heading no. 844250 for the goods in question is ‘NIL’. Hence, an amount paid voluntarily terming it as duty where the duty prescribed under the relevant heading is Nil cannot be availed as cenvat credit. In this regard, the assessee reiterate that the contention that amount paid voluntarily by the supplier of goods cannot be treated as duty is not tenable because no proceedings in this regard have been initiated against the supplier of goods. Further, the contention as regards rate of duty being Nil for the chapter heading 844250, it is submitted that in the Central Excise Tariff, the duty for chapter sub-heading no. 844250 is specified as “10%” and it is on account of exemption notification that full exemption has been provided to the said goods. Therefore, the contention that what was paid by the supplier is not duty of excise specified is totally wrong because duty of excise has been specified in the Central Excise Tariff for the said product as “10%”. The assessee submits that mere ignorance of the exemption available to the said products on account of supplier of goods cannot be reason to deny the cenvat credit of duty paid by them. This is for the reason that duty of properly discharging excise duty has been casted on the manufacturer of such goods and the recipient of goods cannot be expected to be aware of the rate of duty applicable for the products purchased by them. The assessee also submits that the recipient of inputs cannot be burdened or penalised for the mistakes made by the supplier of inputs. Moreover, it is neither duty nor obligation of the buyer to ensure that correct duty is being paid by the supplier on the goods cleared by him. As such, fastening duty liability by way of disallowing the credit availed by the assessee due to fault of the supplier in charging excise duty is not at all justifiable. In support of this contention, reliance is placed on the following judicial pronouncements:-

·         PARASRAMPURIA SYNTHETICS LTD. VERSUS COMMISSIONER OF C. EX., JAIPUR [2005 (191) E.L.T. 899 (Tri. - Del.)]:-

Cenvat/Modvat - For mistake in payment of duty by supplier, issue to be raised at suppliers’ end and not at assessees as they had taken Cenvat credit on the basis of invoice issued by supplier - Cenvat credit taken on basis of specified duty paying document not disallowable - Rules 4 and 9 of Cenvat Credit Rules, 2004. [para 2]

 

·         COMMISSIONER OF C. EX., JALLANDHAR VERSUS AGGARWAL IRON INDUSTRIES [2005 (184) E.L.T. 397 (Tri. - Del.)]:-

 

Cenvat/Modvat - Actual duty paid by manufacturer admissible as credit - Buyer having no responsibility to ensure that correct duty paid by manufacturer of inputs - Credit taken by assessee on duty discharged by manufacturer of inputs, proper and not to be varied when original assessment of inputs remains same - Rule 57A of erstwhile Central Excise Rules, 1944 - Rule 3 of Cenvat Credit Rules, 2004. [para 2]

·         COMMISSIONER OF C. EX., MUMBAI VERSUS ANAND ARC ELECTRODES PVT. LTD. [2010 (252) E.L.T. 411 (Tri. - Mumbai)]:-

Cenvat/Modvat - Documents for taking credit - Assessee entitled to take credit of duty on the strength of duty paying documents, which was correctly taken by them - Assessee not having any responsibility to ensure that correct duty was paid by manufacturer of inputs - Rules 3 and 9 of Cenvat Credit Rules, 2004. - The rule permits variation of Modvat credit only on account of a finding in a proceeding against the supplier of the inputs that the duty has not been correctly paid. Thus variation of Modvat credit amount can be consequential only. This is a clear case here. The original assessment of inputs has not been varied. [para 10]

 

In light of the above cited decisions, it is crystal clear that the buyer of goods is not duty bound to ensure that duty liability has been correctly discharged by the supplier of goods. As such, when the supplier of goods charged excise duty on the goods supplied to the assessee, they paid the same without ascertaining the fact whether the said goods were unconditionally exempt or not. As such, the credit of duty paid by the assessee under bonafide impression that excise duty is leviable on such goods should be allowed and the impugned order in appeal should be dropped as devoid of any merits.

10)         The impugned order has rejected the reliance placed by the assessee on various decisions by merely stating that they are not squarely applicable to the facts of the present case. It is also contended that the assessee cannot escape from the contravention by passing on the mistake to the supplier from whom they have purchased the inputs. It is held that if the supplier is at fault by paying duty on exempted goods and then charging the same from the assessee, the assessee is also equally at fault by paying the same to the suppliers and then availing the amount as cenvat credit. Hence, both are at fault. It is further contended that the assessee ought not to have availed the credit when they very well knew that the supplier is at fault by charging them to an amount by terming it as ‘duty’ for the exempted inputs supplied. The assessee submits that in view of the above cited decisions, it is crystal clear that they are eligible for availing the cenvat credit of duty paid by them. However, the impugned order in appeal has confirmed the recovery of cenvat credit for flimsy reasons without even appreciating the judicial pronouncements relied upon by them which is totally gross violation of the principles of judicial discipline. It is submitted that the recovery of cenvat credit availed by the assessee lacks statutory backing and is also against decision given by the Supreme Court on two occasions. It is also not understandable as to the reason for denial of cenvat credit when the credit is being availed of the duty paid to the government. The denial of cenvat credit in the present case would lead to government sheer harassment of the assessee because neither refund of duty paid by the supplier has been granted nor the availment of credit is being upheld. The assessee also wishes to place reliance on the latest decision given by the Delhi Tribunal in the case of GODAWARI POWER & ISPAT LTD. VERSUS COMMISSIONER OF C. EX., RAIPUR [2013 (295) E.L.T. 312 (Tri.-Del)] wherein it has been held as follows:-

Stay/Dispensation of pre-deposit - Cenvat - Option to avail exemption - Credit denied on the ground that coal supplier should not have paid duty inasmuch as coal was unconditionally exempted vide Notification No. 63/95-C.E. which was withdrawn vide Notification No. 63/95-C.E. - Another Notification No. 1/2011-C.E. issued on 1-3-2011 giving option to coal suppliers to pay duty of excise @ 1% subject to their not availing of credit - From 1-3-2011 to 23-3-2011 both the notifications were in existence and no fault can be found with the coal supplier to avail Notification No. 1/2011-C.E. - Coal supplier paid duty and assessee had availed credit as the same paid by coal supplier - Even otherwise assessment cannot be challenged at the input receiver end - Assessee has a good prima facie case in their favour - Stay petition allowed un-conditionally - Section 35F of Central Excise Act, 1944. [para 3]

In the above cited decision, the Tribunal has taken a prima facie view that even if the coal was unconditionally exempt, the buyer cannot be denied the credit because assessment cannot be challenged at the input receiver end. As such, the facts and circumstances of the case are exactly the same as in the present case. Therefore, the benefit of the above cited decision should be extended and the impugned order in appeal should be set aside.

11)         The assessee reiterate that the provision of Rule 3(1)(i) has been mis-interpreted by the learned adjudicating authority and that the assessee is rightly eligible to avail the cenvat credit of duty of excise paid by them. The assessee submits that when the nature of amount paid as excise duty by the supplier of goods has not been disputed by the revenue department at the supplier’s end, the credit availment at the recipient’s end cannot be disputed. The above submission is also backed by two Supreme Court judgments discussed above, one of them being pertaining to jurisdictional High Court of the assessee. As such, the assessee has neither contravened the provisions of section 5A nor contravened the provisions of Rule 3(1)(i) of the Cenvat Credit Rules, 2004. The assessee further submits that the impugned order in original has rejected their submission as regards provisions of section 5B of the Central Excise Act, 1944 by simply stating that it pertains to different issue altogether. In this respect, the assessee submits that the provisions of section 5B of the Central Excise Act, 1944 were discussed to justify the availment of cenvat credit by the recipient unit when no excise duty was payable as per the statutory provisions.  The provisions of section 5B of the Central Excise Act, 1944 are produced for the sake of convenient reference as follows:-

 

Section 5B Non Reversal of Cenvat Credit:- Where an assessee has paid duty of excise on a final product and has been allowed credit of the duty or tax or cess paid on inputs, capital goods and input services used in making of the said product, but subsequently the process of making the said product is held by the court as not chargeable to excise duty, the Central Government may, by notification, order for non-reversal of such credit allowed to the assessee subject to such conditions as may be specified in the said notification :

 

Provided that the order for non-reversal of credit shall not apply where an assessee has preferred a claim for refund of excise duty paid by him :

 

Provided further that the Central Government may also specify in the notification referred to above for non-reversal of credit, if any, taken by the buyer of the said product.

The incorporation of the above provision in the statue is itself indicator of the fact that the ultimate intention of the government is to facilitate the scheme of cenvat credit and the cenvat credit cannot be denied merely because the process undertaken is declared as not amounting to manufacture and not leviable to excise duty. It is well settled that the credit of inputs/input services/capital goods is admissible only if they are used in the manufacturing activity. When the process undertaken on the products is held to be not chargeable to excise duty, then too, the government has been vested with the power to allow the credit availed on the inputs/input services capital goods. This has been done for the reason that the excise duty was paid on such process which did not amount to manufacture and was not leviable to excise duty. Similar is the case where the excise duty was not payable due to exemption granted by the government but mistakenly duty was paid on such exempted goods. However, this cannot direct the revenue department to deny rightly admissible credit availed by the bonafide purchaser of such goods that have used the said goods in the manufacture of final dutiable products. As such, the proposal of recovery of credit is against the legislative intention of the government and so the same is not sustainable. It has been held in a number of judicial pronouncements that the interpretation that defeats the intention of statute is not sustainable. Reliance is placed on the following judgments:-

·         BALWANT SINGH VERSUS JAGDISH SINGH [2010 (262) E.L.T. 50 (S.C.)]:-

Interpretation of statutes - Legislative intention - Provisions of statute including every word to be given full effect keeping legislative intent in mind to ensure achieving projected object - No provision treatable as enacted purposelessly - Court not to give interpretation to provisions to render them ineffective or odious. [para 14]

·         COMMISSIONER OF CENTRAL EXCISE, LUDHIANA VERSUS RALSON INDIA LTD. [2006 (202) E.L.T. 759 (P & H)]

Interpretation of statute - Question whether a statutory provision is mandatory or directory depends upon intent of Legislature, and not language in which the intent is couched - Literal construction which makes a particular provision manifestly absurd or leads to anomalous results, to be avoided. [para 9]

In view of above cited judgments, the impugned order in appeal passed on the basis of interpretation which defeats the legislative intent deserves to be quashed.

12)         The assessee submits that the extended period of limitation is not invokable in the present case as there was no suppression of facts from the department and moreover, there was no good reason for suppressing the facts because the issue of credit eligibility in the present case is covered in favour of the assessee by the Supreme Court in two decisions. Moreover, the contention that the assessee being a large private company ought to be aware about the relevant provisions of law is totally absurd because a manufacturer cannot be expected to have knowledge about the rate of duties applicable and various kinds of exemptions available to the capital goods purchased by them. The manufacturer may be presumed to be aware of the exemptions and rate of duties applicable for the products manufactured by them but they cannot be expected to have complete knowledge about the taxability and exemptions available to products manufactured by others. As such, the contention that the assessee was aware of the exemption available to the ‘Engraved printing cylinders’ purchased by them is totally vague. It is further submitted that there is no mechanism to separately show the amount of cenvat credit taken for particular inputs/capital goods and a consolidated figure is shown in the return. When any information is not required to be provided, its non provision cannot be alleged as suppression as held in following cases:-

 

Ø  APEX ELECTRICALS PVT. LTD. VS UNION OF INDIA [1992 (61) E.L.T. 413 (GUJ.)]:-

“Demand - Limitation - Suppression - Information not required to be supplied under law if not supplied does not amount to suppression - Proviso to Section 11A(1) of Central Excises and Salt Act, 1944.”

Ø  PROLITE ENGINEERING CO. VS UNION OF INDIA [1995 (75) ELT 257 (GUJ.)]:-

“Demand - Limitation - Non-disclosure of information which is not required to be disclosed or recorded by statutory provision or prescribed proforma does not amount to suppression or concealment - Extended period of limitation not invokable - Proviso to Section 11A(1) of Central Excises & Salt Act, 1944 - Rules 9(2) and 57-I of Central Excise Rules, 1944.”

An analysis of both of these decisions given by hon’ble High Courts makes it clear that the information not required to be submitted under law does not amount to suppression. In the instant case, the assessee were not required to provide the details of credit taken for various capital goods separately and so consolidated credit amount was shown in the return. The law only required to disclose the cumulative figure of the total credit availed and utilized which is duly being shown by them. As such, non providing of information not required to be provided under law, does not amount to suppression. Therefore, in the light of above decisions, the allegation of suppression is not sustainable and the demand is barred by the clause of limitation.

 

13)         It is further submitted that the learned appellate authority has accepted that assessee has taken the credit of duty on the bonafide belief that they are eligible for such credit. Therefore, invocation of extended period of limitation is not justified in the present case in the light of decision of hon’ble Supreme Court in the case of Rainbow Industries v/s. CCE [1994 (74) ELT 3 (SC)] wherein it has been held that for invoking the extended period, two ingredients are essential – (i) Wilful suppression, mis-declaration, etc. and (ii) Intention to evade payment of duty. In absence of both of these extended period cannot be invoked. This is also held in the case of CHEMPHAR DRUG & LIMITS REPORTED IN (2002-TIOL-266-SC- CX) - [1989 (40) E.L.T. 276 (S.C.)] that extended period of limitation can only be invoked in case of fraud, collusion, suppression or willful misstatement. In absence of these essential ingredients, extended period cannot be invoked. Verdicts of hon’ble Supreme Court held as under:-

“Demand – Central Excise – Limitation –Invoking extended period of five years – something positive other than mere inaction or failure on part of the manufacturer or producer or conscious or deliberate withholding of information when the manufacturer knew otherwise, is required before it is saddled with any liability, before the period of six months.”

Thus, in the light of above decision, extended period cannot be invoked blindly in every case. Where the assessees have been acting in the boundaries of law, the extended period cannot be invoked. Similar decision is given in the following cases:-

Ø  PUSHPAM PHARMACEUTICALS COMPANY VS. CCE, MUMBAI ( 2002-TIOL-235-SC- CX )

Ø  LARSEN & TOUBRO LTD. VERSUS COMMISSIONER OF C. EX., PUNE-II [2007 (211) ELT 513(S.C.)]

Ø  PADMINI PRODUCTS VS. CCE [1989 (43) ELT 195 (Supreme Court)]

 

In the above cases, it was held that mere negligence or failure to pay duty on part of assessee is not sufficient to invoke the extended period of limitation. It should be proved that there was suppression of facts with intent to evade payment of service tax. In the present case, it is not in dispute that the assessee was on the bonafide belief and there was no suppression of facts involved. Therefore extended period can’t be invoked in present case therefore  The assessee have rightfully availed the credit under the provisions of Rule 3 of the Cenvat Credit Rules, 2004 and were not required to disclose the information of credit separately to the department. As such, this is not the case of suppression. Thus, the extended period is wrongly invoked in the instant case and the demand is barred by the clause of limitation.

 

14)         The assessee further submits that when the demand for recovery of cenvat credit is not tenable, the question of levy of interest under section 11AB/11AA of the Central Excise Act, 1944 does not arise. Hence, the impugned order in appeal confirming interest is liable to be dropped.

 

15)         The assessee also submits that the impugned order in appeal has been passed without considering most of the submissions made by them. The assessee in their reply, grounds of appeal and written submissions had relied upon a number of decisions on the even issue but the learned adjudicating authority and the appellate authority has simply rejected the reliance placed by them by stating that the facts of the case are not relevant to the present case. The learned adjudicating authority and appellate authority has not even taken the pain to discuss and distinguish the decisions relied upon them which leads to passing of a non-reasoned and a non-speaking order which is not tenable in the eyes of law. The certain submissions have already been discussed in the preceding paragraphs. The submissions that have not been considered while passing the impugned order in appeal are once again produced below and form the grounds of appeal to the present appeal.

 

 

Ø  It was submitted that there was nothing wrong in availment of credit on the duty paid by them on engraved printing cylinders and copper engraved cylinders purchased by them which were used as capital goods in the manufacturing of final products as far as the substantial conditions for availment and utilisation of credit stands fulfilled by them. In this respect, it is worth mentioning that the basic objective of introduction of “Cenvat Credit Facility” by the government is to avoid the cascading effect of taxes so that duty on duty is not levied. The cenvat credit scheme facilitates availment and utilisation of duty paid by a manufacturer or provider of output service on inputs, capital goods and input services against the duty liability on the final products or taxable service. The basic theme of granting input tax credit is to avoid payment of duty on duty. Therefore, the basic requirements of availing credit and utilising the same subsequently are as follows:-

 

·         Receipt of inputs/input services/capital goods in the factory of the manufacturer of dutiable final product or provider of output service.

·         Use of such inputs/input services/capital goods in the manufacture of dutiable final product or provision of service.

·         Eligibility of inputs/input services/capital goods for availment of credit like in case of capital goods specific chapter headings are covered.

·         Availability of valid documents/invoices as prescribed under Rule 9 of the Cenvat Credit Rules, 2004.

 

It was submitted that as far as all the above basic conditions are satisfied, there is no embargo in availing the cenvat credit and its utilisation subsequently. In present case also, they have correctly availed the cenvat credit of Rs. 4,85,567/- on the engraved printing cylinders falling under chapter heading 844250 as the said goods are covered by the defination of capital goods as given under Rule 2(a) of the Cenvat Credit Rules, 2004. Moreover, there is also no doubt as regards receipt of the said goods under the cover of proper invoice and their use and duty payment. As such, denial of credit solely on the grounds that the supplier of such goods was not required to pay excise duty on the said goods is not tenable. They also submit that they have taken the cenvat credit on such goods and have used the said goods in the manufacture of final products that were cleared on payment of duty. They submit that the duty paid on clearance of final products tantamounts to reversal of credit taken on the input/input services and capital goods. Accordingly, as far as the final products are cleared on payment of duty, the availment of credit and its subsequent utilisation cannot be faulted if supported by proper relevant documents. Therefore, the impugned order in appeal proposing to deny the cenvat credit availed by them is wholly and totally against the scheme of cenvat credit of avoiding cascading effect and the same should be set aside.

Ø  It was also submitted that recently, Gujarat High Court in the case of Arvind Ltd. Vs Union of India [2014 (300) E.L.T. 481 (Guj.)] has allowed rebate even if duty was paid on the exported goods that were unconditionally exempted from the payment of excise duty. It was contended by the revenue that as the exporter made payment of duty on his own will while there was absolute exemption to the exported goods, rebate claim was not admissible to the exporter. However, the Hon’ble Gujarat High Court has held that even if the goods were unconditionally exempted, there is no reason for denying the rebate claim of the assessee which is otherwise admissible to the exporter. Accordingly, the Gujarat High Court allowed the appeal of the exporter and concluded that the rebate claim is admissible to the exporter. On similar lines, if the excise duty which was not required to be paid but has been paid by the buyer of goods, the credit of the duty paid is admissible to the buyer, if the same is otherwise allowed. It is worth noting that rebate claim is as good as credit availment and if the rebate claim can be allowed, the credit to the buyer of goods should also be allowed. Hence, the impugned order in appeal should be withdrawn.

 

Ø  It was submitted that they have not contravened any of the provisions of Rule 3 or Rule 9(5) of the Cenvat Credit Rules, 2004 and the allegations levelled against them in the impugned show cause notice are totally baseless. As far as the provisions of Rule 3 of the Cenvat Credit Rules, 2004 are concerned, there was no contravention on their part as it is not disputed that they have claimed cenvat credit of engraved printing cylinders and copper engraved cylinders that fall under chapter 84 and are duly covered by the defination of capital goods. Moreover, there is also no dispute as regards availment of 50% credit in the year of purchase. Further, the credit has been taken on the basis of proper invoices as specified under Rule 9 and the receipt of such goods and payment of excise duty are also not doubted. Therefore, they have not contravened any of the provisions of Rule 3 of the Cenvat Credit Rules, 2004. As far as the burden to prove admissibility of credit is concerned, they wish to produce the provision of Rule 9(5) which states that:-

 

The manufacturer of final products or the provider of output service shall maintain proper records for the receipt, disposal, consumption and inventory of the input and capital goods in which the relevant information regarding the value, duty paid, cenvat credit taken and utilised, the person from whom the input or capital goods have been procured is recorded and the burden of proof regarding the admissibility of the cenvat credit shall lie upon the manufacturer or provider of output service taking such credit.

 

From perusal of the above provision, it is clear that although the burden of proof regarding the admissibility of the cenvat credit is on the manufacturer taking such credit but the said burden is restricted to aspects such as whether the credit is taken for eligible inputs/capital goods, proper maintenance of records, the duty paid nature, details of the person from whom input or capital goods have been purchased, availability of proper invoices etc. It is neither specified nor can it be expected from a purchaser to verify the rate of duty chargeable on the products supplied to them as it is practically not possible. The contention of the impugned show cause notice reveals that they were required to inquire and verify the duty liability on the products purchased by them and which is certainly not legally required. They submit that when the liability to discharge excise duty is on the manufacturer clearing the excisable goods, expecting the purchaser to be aware of the rate of duty applicable on goods purchased by him is too much. As such, they have not contravened the provisions of Rule 9(5) of the Cenvat Credit Rules as well and the impugned show cause notice has placed wrong reliance on the same.

 

Ø  Apart from the decisions relied upon in the grounds to the appeal on the issue, strong reliance is also placed on following decisions:-

·         CUMMINS DIESEL SALES & SERVICE INDIA LTD. VERSUS COMMR. OF C. EX., PUNE-III 2015 (315) E.L.T. 63 (Tri. – Mumbai)] wherein it was held that :-

 

Cenvat/Modvat - Supplier of goods alleged not a manufacturer, hence, duty paid by supplier is only a deposit and not the duty - Goods supplied by supplier is an excisable product and assessee procured the goods on payment of duty, not disputed - Once the supplier of goods had discharged the duty liability, the recipient can take Cenvat credit of duty paid and use the same in further manufacture of dutiable final product - Rule 2 of Cenvat Credit Rules, 2004. [para 5.1]

·         COMMR. OF C. EX., FARIDABAD, DELHI-IV VERSUS SYNMEDIC LABORATORIES [2013 (294) E.L.T. 147 (Tri. - Del.)] wherein it was held that:-

 

Demand - Cenvat credit - Respondent availed credit of duty paid by supplier of inputs - Cenvat credit denied on the ground that no duty to be paid on inputs - HELD : Officer incharge of manufacturing unit cannot be allowed to determine whether supplier rightly paid the duty - Denial of credit without jurisdiction - Rule 14 of Cenvat Credit Rules, 2004 - Section 11A of Central Excise Act, 1944. [para 5]

The above cited decision lays down an important ratio that the recipient of any inputs has no control over the supplier that whether duty should be paid or not. The officers incharge of the manufacturing unit cannot be allowed jurisdiction to ascertain and verify whether each of the suppliers have rightly paid duty and so their stand that supplier should not have paid duty is without jurisdiction.

·         GODAWARI POWER & ISPAT LTD. VERSUS COMMISSIONER OF C. EX., RAIPUR [2013 (295) E.L.T. 312 (Tri.-Del)] wherein it has been held that:-

Stay/Dispensation of pre-deposit - Cenvat - Option to avail exemption - Credit denied on the ground that coal supplier should not have paid duty inasmuch as coal was unconditionally exempted vide Notification No. 63/95-C.E. which was withdrawn vide Notification No. 63/95-C.E. - Another Notification No. 1/2011-C.E. issued on 1-3-2011 giving option to coal suppliers to pay duty of excise @ 1% subject to their not availing of credit - From 1-3-2011 to 23-3-2011 both the notifications were in existence and no fault can be found with the coal supplier to avail Notification No. 1/2011-C.E. - Coal supplier paid duty and assessee had availed credit as the same paid by coal supplier - Even otherwise assessment cannot be challenged at the input receiver end - Assessee has a good prima facie case in their favour - Stay petition allowed un-conditionally - Section 35F of Central Excise Act, 1944. [para 3]

·         SARDA ENERGY & MINERALS LTD. VERSUS COMMR. OF C. EX. & SERVICE TAX, RAIPUR [2015 (315) E.L.T. 437 (Tri. – Del)] wherein it was held that:-

 

Stay/Dispensation of pre-deposit - Cenvat vis-a-vis exemption - Coal supplier under the mistaken belief that duty on coal has been imposed started paying duty after duly intimating the Central Excise Department and assessees being buyer of coal took Cenvat credit of duty so paid - Exemption under Notification No. 63/95-C.E. is subject to condition and therefore prima facie it is not mandatory for coal supplier to avail of it - Very basis for denying Cenvat credit holding that coal supplier was mandatorily required to avail of exemption under said notification is totally hit - Assessees already deposited ` 10 lakhs - Prima facie strong case made out for waiver of pre-deposit of remaining amount - Section 35F of Central Excise Act, 1944. [paras 6, 7]

 

·         NATCO PHARMA LTD. VERSUS COMMISSIONER OF CUS. & C. EX., HYDERABAD-III [2011 (274) E.L.T. 438 (Tri. - Bang.)] wherein it was held that:-

 

Stay/Dispensation of pre-deposit - Cenvat credit - Non-excisable inputs - Cenvat credit not deniable alleging inputs being non-excisable when duty has been paid on inputs - Under Rule 3 of Cenvat Credit Rules, 2004, credit is available for duty “paid” and not for duty “payable” - Requirement of said Rule 3 satisfied when credit is availed on the strength of invoice under the relevant rule evidencing payment of duty on inputs in question - Prima facie, benefit of Cenvat credit not deniable - Pre-deposit waived and recovery thereof stayed - Section 35F of Central Excise Act, 1944. [para 4]

In light of the above cited decisions, it is crystal clear that the cenvat credit cannot be denied on the grounds that the supplier of inputs was not required to pay duty. Therefore, the benefit of the above cited decisions should be extended to the present case and the appeal should be allowed.

 

 

16)         It is submitted that as most of the contentions made by the assessee have been ignored, the impugned order in appeal has turned out to be a non-speaking and a non-reasoned order which has no relevance in the eyes of law in light of the following decisions:-

·         STATE OF HIMACHAL PRADESH VS SARDARA SINGH [2008-TIOL-160-SC-NDPS]:-

 

Even High Courts are required to pass speaking reasoned orders - The "inscrutable face of a sphinx" is ordinarily incongruous with a judicial or quasi-judicial performance. The manner in which appeal against acquittal has been dealt with by the High Court leaves much to be desired. Reasons introduce clarity in an order. On plainest consideration of justice, the High Court ought to have set forth its reasons, howsoever brief, in its order indicative of an application of its mind, all the more when its order is amenable to further avenue of challenge. The absence of reasons has rendered the High Court order not sustainable. The requirement of indicating reasons in such cases has been judicially recognized as imperative. Judicial discipline to abide by declaration of law by this Court, cannot be forsaken, under any pretext by any authority or Court, be it even the Highest Court in a State, oblivious to Article 141 of the Constitution of India. Reasons are live links between the mind of the decision taker to the controversy in question and the decision or conclusion arrived at. Reasons substitute subjectivity by objectivity. The emphasis on recording reasons is that if the decision reveals the "inscrutable face of the sphinx", it can, by its silence, render it virtually impossible for the Courts to perform their appellate function or exercise the power of judicial review in adjudging the validity of the decision. Right to reason is an indispensable part of a sound judicial system, reasons at least sufficient to indicate an application of mind to the matter before Court. Another rationale is that the affected party can know why the decision has gone against him. One of the salutary requirements of natural justice is spelling out reasons for the order made, in other words, a speaking out. The "inscrutable face of a sphinx" is ordinarily incongruous with a judicial or quasi-judicial performance: SUPREME COURT.

·         Commissioner of Central Excise, Bangalore versus Srikumar Agencies [2008 (232) E.L.T. 577 (S.C.)]:-

“Appellate Tribunal’s order - Non-speaking order - Facts not analysed in detail in impugned order by Tribunal - Disposal of appeals by mere reference to decisions not proper way to deal with appeals - Applicability of decision cited by Revenue not considered - Appeals involving different goods - CESTAT ought to have examined cases individually and articles involved - Manner of disposal not proper - Impugned order set aside - Question referred to Larger Bench of Supreme Court not answered as matter remitted to CESTAT for fresh decision by appropriate Bench - Section 35C of Central Excise Act, 1944. - By clubbing all the cases together and without analyzing the special features of each case disposing of the appeals in the manner done was not proper. [para 6]”

In view of above judgments, the impugned order in appeal is a non speaking order as it has failed to discuss and distinguish the submissions and the decisions cited by the assessee, therefore, the impugned order is not tenable in the eyes of law and is liable to be quashed and the appeal should be allowed.

 

Reasoning adopted by the appellate authority:

The learned commissioner have gone through the Order-in Appeal, corrigendum, Case records, reply to the Appeal, written submission, documents furnished by the assessee as well as the submissions made during course of personal hearing.

On perusal of records, it transpires that the issue is regarding the eligibility of availing Cenvat credit of central excise duty paid by the supplier of the goods or otherwise.

 

The assessee herein and availed Cenvat credit of the central excise duty paid on the Engraved Printing Cylinders for manufacturing of dutiable goods. The denial of the cenvat credit to assessee is on the ground that the supplier of Engraved Printing Cylinders ought not to have paid any duty as they are exempted. It was found that there is no dispute that Engraved Printed Cylinders are duty paid, received by assessee for manufacturing purposes if dutiable goods and the said Engraved Printed Cylinders are received under duty paying documents.

 

It was found that the Hon'ble Gujarat High Court in the case of Commissioner of Central Excise, Ahmedabad-III vs. NAHAR Granities Ltd. 2014 (305) ELT 9 (Guj.), wherein a similar set of facts as to

eligibility to avail Cenvat credit of the duty paid on goods exempted) l was under consideration before their lordships and vide their judgement dated 24.04.2014 held that such credit of duty paid on goods is to be allowed. The facts in the case of NAHAR Granities Ltd (supra) and facts in this case are very similar, accordingly, respectfully following the law laid down by the jurisdictional High. Court, it was concluded that the impugned order is unsustainable, liable to be set-aside. The said judgement of the Hon'bl.e High Court of Gujarat is upheld by the Apex Court on 24.11.20.14 by dismissing the Special Leave Petition after condoning the delay.

 

In view of the forgoing, impugned order is set-aside and the appeal is allowed.

 

Decision:- Appeal allowed.

Conclusion:- The essence of this case is that as far as duty paid character of goods is not disputed, the cenvat credit cannot be denied to the ultimate receiver of goods. The decision was given by placing reliance on the Gujarat High Court decision given in the case of Nahar Granites Ltd. It is settled principle of law that the assessment finalized at the end of supplier cannot be challenged at the receiver’s end and the substantial benefit of cenvat credit cannot be denied to the receiver.  

 

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