Whether benefit of exemption notification for unbranded goods deniable for availing credit with respect to branded goods cleared on payment of duty?

PJ/Case Study/2013-14/89

Prepared by: CA Neetu Sukhwani &
Hushen Ganodwala

Case Study

Introduction:M/s KTF Fashion Pvt. Ltd. are engaged in the manufacture of branded and unbranded readymade garments. Branded readymade garments were dutiable as per notification no. 29/2004-CE whereas unbranded readymade garments were liable to Nil rate of excise duty under notification no. 30/2004-CE and were cleared without payment of duty. As the assessee was clearing branded goods on payment of duty under notification no. 29/2004-CE, they also availed cenvat credit of inputs used in the manufacture of said branded goods. Moreover, they also received defective branded garments for repair purpose and also took credit on their receipt under Rule 16 of the Central Excise Rules, 2002. However, the revenue department observed that as they were availing credit under Rule 16, they have violated the condition of the exemption notification no. 30/2004-CE which prescribed that the benefit of notification is admissible only for those goods on which no credit is taken on inputs used in manufacturing such goods. Accordingly, show cause notice was issued to them proposing to deny the exemption of nil rate of duty contained in the notification no. 30/2004-CE and demanding excise duty along with interest and penalty on goods cleared under the said exemption notification. The assessee replied that the credit availed by them pertained to branded goods cleared on payment of duty by them. The decision of the show cause notice is the subject matter of case study.

M/s. KTF FASHIONS PVT. LTD. [OIO No. MP/07/AC/RB/DIV.IV/2013-14 DATED 15/11/2013]

Relevant legal provisions:-

Rule 16 ofCentral Excise Rules, 2002.

Notification no. 29/2004-CE dated 09.07.2004.

Notification no. 30/2004-CE dated 09.07.2004.

Issue involved:Whether benefit of exemption notification for unbranded goods deniable for availing credit with respect to branded goods cleared on payment of duty?

Brief facts:-M/s KTF Fashions Pvt. Ltd. (herein after referred to as the assessee), situated at Survey No. 168, Opp. Ranipur Patia, Narol- Sarkhej Road, Ahmedabad-382405 having Central Excise Registration No. AADCK2620EEM002 is engaged in the manufacture of goods falling under chapter 61 of Central Excise Tariff Act, 1985 and is availing facility of Cenvat Credit under Cenvat Credit Rules, 2004.

On scrutiny of the ER-1s filed by the said unit for the month from January-2012 to April-2012, it is found that the said assessee is availing the benefit of Cenvat credit on inputs as per Cenvat Credit Rules, 2004 and clearing branded readymade garments on payment of normal rate of duty. Also it is noticed that they had cleared their unbranded product without payment of duty by availing benefit of Notification no. 30/2004-CE dated 09.07.2004 as amended. As per notification no. 30/2004-CE, all excisable goods falling under Chapter 61 (other than those bearing a brand name or sold under brand name) is exempted from whole of the duty of excise leviable thereon under the Central Excise Act subject to condition that no cenvat credit on inputs or capital goods has been taken under the provisions of CEVAT Credit Rules, 2002.

In the present case, the said assessee is availing the benefit of Cenvat credit on inputs as per Cenvat Credit Rules, 2002 and simultaneously availing the benefit of exemption Notification no. 30/2004 for unbranded garments falling under Chapter 64 of CETA, 1985, for which they are not entitled, in view of the condition laid down in the notification itself as mentioned above. On the basis of the returns submitted by the said assessee, the duty required to be paid by them on unbranded readymade Garments, which they have cleared by availing benefit Notification No. 30/2004-CE is calculated as under:

Sr. No.	Month	Total Assessable value of unbranded product cleared under Notification No. 30/2004	Duty required to be paid at 10.30% for Jan-2012 & Feb-2012 & 12.36% in March-2012 & April.-2012
1	January-2012	915007	94246
2	February-2012	419459	43204
3	March-2012	1445118	178617
4	April-2012	612838	75747
	Total	33,92,422	3,91,814

From the above, it is alleged that from January, 2012 to April, 2012 they have cleared the goods i.e. unbranded readymade garments of value Rs. 33,92,422/- without payment of duty as per Rule 4 of CER, 2002 and the excise duty on the same is payable along with interest and penalty.

Assessee’s contention:The following submissions were made before the adjudicating authority:-

1) They are assessee registered having registration no. AADCK2620EEM002. They are manufacturer of readymade garments falling under chapter 61 of the Central Excise Tariff Act, 1985. They are clearing the unbranded readymade garments by availing the benefit of Notification no. 30/2004 of Central Excise dt 09.07.2012. They are also clearing the branded goods by paying the duty at applicable rates by availing the benefit of Cenvat Credit in accordance with the Cenvat Credit Rules, 2004 under Notification no. 29/2004-CE dated 09.07.2012. They submit that the impugned show cause notice issued to them is wholly and totally erroneous and is liable to be set aside.

2) They submit that the impugned show cause notice is alleging that they have availed the Cenvat Credit on inputs, as such, the benefit of Notification no. 30/2004-CE is not available to them and they were required to pay the duty on the clearance of unbranded readymade garments. In this regard, it is reiterated that they are clearing the two types of products as follows:-

· Branded readymade garments – Cenvat Credit is availed on the inputs utilized and duty is paid while clearing these products.
· Unbranded readymade garments – No Cenvat Credit is availed on the inputs utilized in manufacture of the unbranded readymade garments and these products are cleared without payment of duty under notification no. 30/2004-CE.

Aligning with above it is submitted that the notification on. 30/2004 supra only restricts the availment of credit on the inputs used in the manufacture of the final products that are cleared under this notification. Since they are not availing any credit on the inputs utilized in manufacture of the unbranded garments, the prohibition contained in this notification is not hit and as such, its benefit is duly allowable to us. In this regard, they would like to reproduce the opening para of this notification which reads as follows:-

“G.S.R. (E). - In exercise of the powers conferred by sub-section (1) of section 5A of the Central Excise Act, 1944 (1 of 1944) read with sub-section (3) of section 3 of the Additional Duties of Excise (Goods of Special Importance) Act, 1957 (58 of 1957) and in supersession of the notification of the Government of India in the Ministry of Finance (Department of Revenue) No. 07/2003-Central Excise dated the 1st March 2003, published in the Gazette of India vide number G.S.R. 137 (E), dated 1st March 2003, the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts the excisable goods of the description specified in column (3) of the Table below and falling within the Chapter, heading No. or sub-heading No. of the First Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) (hereinafter referred to as the Central Excise Tariff Act), specified in the corresponding entry in column (2) of the said Table, from whole of the duty of excise leviable thereon under the said Central Excise Act:

Provided that nothing contained in this notification shall apply to the goods in respect of which credit of duty on inputs has been taken under the provisions of the Cenvat Credit Rules, 2004, -“

The analysis of above proviso to this notification makes it clear that this notification will not apply to the goods “IN RESPECT OF WHICH” credit of duty paid on inputs has been taken. The use of words “in respect of which” clarifies that the credit is not allowed only on those inputs which are used in the manufacture of ‘unbranded garments’. Since they have availed the credit only in respect of the inputs that are used in the manufacture of “branded goods” that are cleared on payment of duty, and no credit is availed on the inputs used in the manufacture of ‘unbranded garments’; the above prohibition is not hit and the benefit of this notification cannot be denied to us. The contention of the impugned show cause notice is thus liable to be set aside.

3)            In continuation to above it is submitted that even if the contention of the impugned show cause notice is accepted for the sake of argument only, then too, it is not viable as it will make the use of words “IN RESPECT OF WHICH” in the above notification as redundant. Therefore, such an interpretation which makes any part of notification or legal provision as redundant, is not sustainable. It has been held by the hon’ble Supreme Court that any interpretation which results in rendering any portion of rule or legislation redundant should be avoided. This has been decided in the case of Amrit Paper vs. CCE, Ludhiana [2006 (200) ELT 365]and also in the case of Rajesh Kumar Sharma vs. UO [2007(209)ELT 0003(SC).]. In both of these cases, the highest court of India has decided that the interpretation which results in rendering any portion of rule or legislation redundant should be avoided. Therefore, in the light of these two decisions, the contention of impugned show cause notice that this condition prohibits the Cenvat credit availed on all the inputs (even if not used in the manufacture of unbranded garments) is not sustainable as it will make the use of words “IN RESPECT OF” as redundant. Therefore, the impugned show cause notice issued by taking such an interpretation is not sustainable and is liable to be set aside.

4)            Aligning with the above, they further submit that the issue under consideration is crystal clear but the revenue is unnecessarily inserting disputes in the same. They reiterate that they clear unbranded goods without payment of central excise duty by availing the benefit of notification no. 30/2004-CE dated 09.07.2004 and are clearing the branded goods on payment of central excise duty in terms of the notification no. 29/2004-CE dated 09.07.2004. They submit that while clearing branded goods, often there are cases of repair or re-conditioning of the branded goods on account of stitching defects or false/improper tag on such goods for which said defective goods are sent back to our premises. Consequently, they follow the procedure prescribed under Rule 16 of the Cenvat Credit Rules, 2004 whereby credit is being availed on such duty paid defective goods as ‘inputs’ and thereafter, on their clearance subsequent to removal of the pointed defects, the credit availed during their receipt is being reversed by us. They submit that the procedure as prescribed under Rule 16 has been strictly adhered to and the credit has been availed only of the goods that have received for the purposes of re-make, refining or re-conditioning. Moreover, there is one to one correlation of the credit availed and that reversed with respect to the branded goods received in terms of the provisions of the Rule 16 of the Central Excise Rules, 2002 and so there is no contravention of the conditions of the notification no. 30/2004-CE. It is worth reiterating here that the credit in anyways pertains to BRANDED GOODS and so the credit taken for such goods cannot be the reason to deny the benefit of the rightly admissible exemption prescribed under the notification no. 30/2004 with respect to unbranded goods. However, the revenue is resorting to illogical means to deny the benefit of exemption claimed by them for unbranded goods on account of availing credit with respect to branded goods and that too in terms of the provisions of Rule 16. They reiterate that the credit availed as inputs under Rule 16 were reversed by them on subsequent clearance of repaired branded goods and so actually, no credit is being availed by us. Moreover, the credit availed and reversed by them was directly related to the branded goods and solely pertained to branded goods and had no relation to the inputs used in unbranded goods. As such, no credit has been taken by them with respect to unbranded goods and so denial of the benefit of exemption on the basis of allegation that is totally erroneous in view of the above discussion is not sustainable and the impugned show cause notice should be quashed.

5)            Without prejudice to the above submissions, it is submitted that the credit was being availed on the rejected branded goods that were initially cleared on payment of appropriate duty. After carrying out the repairs, re-fitting, re-tagging, etc., they had cleared the same in accordance with the rule 16(2) of the Central Excise Rules, 2002. Thus, the credit that was availed at the time of receipt of rejected goods stands paid back at the time of clearance of goods. Therefore, even if it is accepted for the sake of argument also that the credit availed on the rejected goods amounts to availment of credit thereby tantamounting to violation of the condition of the notification no. 30/2004-CE, then too, no demand is sustainable. The first and foremost reason being that the credit pertained to the branded goods which were governed by the provisions of the notification no. 29/2004 and the second reason being that the credit so availed has already been reversed. In this regard, it is submitted that hon’ble Supreme Court has decided that the reversal of credit amounts to non-taking of Cenvat Credit. This decision is discussed as follows:-

·         CHANDRAPUR MAGNET WIRES (P) LTD. VS COLLECTOR OF C.EX., NAGPUR [1996 (81) E.L.T. 3 (S.C.)]
“They see no reason why the assessee cannot make a debit entry in the credit account before removal of the exempted final product. If this debit entry is permissible to be made, credit entry for the duties paid on the inputs utilised in the manufacture of the final exempted product will stand deleted in the accounts of the assessee. In such a situation it cannot be said that the assessee has taken credit for the duty paid on the inputs utilised in the manufacture of the final exempted product under Rule 57A. In other words, the claim for exemption of duty on the disputed goods cannot be denied on the plea that the assessee has taken credit of the duty paid on the inputs used in manufacture of these goods. [para 7]
In the above cited judgment, it has been held that the reversal of credit tantamount to non-availment of credit. The Supreme Court opined that the debit entry itself shows the reversal of credit availed and so it cannot be concluded that cenvat credit was taken. In this case, by doing the reversal the assessee had claimed the benefit of exemption notification which gave exemption only if the credit was not taken. By upholding the contention of the assessee, hon’ble Supreme Court had allowed the benefit of exemption notification by taking the view that the reversal of credit amounts to non availment of credit. In the present case, they have availed credit on the receipt of the defective branded products under rule 16(1) of the Central Excise Rules, 2002. This credit was subsequently reversed at the time of clearance of the said repaired branded goods as per rule 16(2) of the Central Excise Rules, 2002. Thus, in the light of above cited judgment, the ratio of the decision that the reversal of credit amounts to non availment of credit holds good here also. Therefore, even if it is accepted for the sake of argument also that the allegation of the impugned show cause notice is correctly stating that the availment of credit on rejected duty paid goods amounts to violation of the conditions of the notification no. 30/2004-CE, then too, since the credit stands reversed; no liability can be confirmed against us. Hence, extending the benefit of the above cited decision, the impugned show cause notice should be set aside as being totally erroneous.

6)          They further submit that they have already reversed the amount of credit taken with respect to goods received under Rule 16 along with interest and the same is evidenced by the copy of acknowledgment of the payment received as enclosed with the reply. They have paid the credit attributable to the disputed period under consideration amounting to Rs. 39,089/- (including interest) vide challan serial no. 80266 dated 30.09.2013. As such, when the credit taken already stands reversed along with interest, the question of denial of the benefit of the notification no. 30/2004-CE does not arise as credit reversed amounts to ‘non taking of the credit’ and hence none of the conditions for claiming the benefit of the notification has been violated by them.

Further, they submit that the Apex Court in the case of CCE v/s Bombay Dyeing & Manufacturing Co [2007 (215) ELT 3 (SC)] has again held that reversal of credit amount to non-availment of credit. This has also been held in the case of M/s Hetro Drugs Ltd v/s Commissioner of Central Excise, Hyderabad [2005-TIOL-1319-CESTAT-BANG]. Further the High Court of Gujarat has also held in the case of CCE v/s Ashima Dyecot Ltd [2008-TIOL-659-HC-AHM-CX] that reversal of credit amounts to non-taking of credit on inputs. Further reliance is placed on the following cases:-

· CCE & CC, Vadodara v/s M/s Ram Krishna Travels Pvt Ltd [2009-TIOL-1768-CESTAT-AHM]:-

Service Tax –Reversal of actual amount of Cenvat credit sufficient to claim abatement in terms of Notification No. 1/2006-ST – Apex Court judgment in Chandrapur Magnet Wires Pvt Ltd [2002-TIOL-41-SC-CX] followed:AHMEDABAD CESTAT;

· CST, Ahmedabad v/s M/s Amola Holdings Pvt Ltd [2009-TIOL-1000-CESTAT-AHM]-

ST – construction of complex service – abatement of 67% - Assessee first avails credit on input services and also capital goods – then reverses the same to avail abatement – Revenue denied it on the ground that the assessee first availed credit and then abatement after reversal of credit which is not permissible – Commissioner (A) disagrees with the Revenue – held, it is inconsistent view of the judiciary that once credit is reversed, the assessee can avail other benefits – no substance in Revenue’s appeal: AHMEDABAD CESTAT;

· M/s Beekay Engineering Corpn v/s CCE, Raipur [2009-TIOL-1396-CESTAT-DEL]-

ST – Works Contract Service – Cenvat credit availed by the assessee –later reversed and abatement claimed – Revenue raises demand – held, once credit availed on the input is reversed, the case may be equated with non-availment and waiver of pre-deposit is granted:DELHI CESTAT;

· M/s Punjan Builders v/s CCE, Vadsdara-II [2009-TIOL-57-CESTAT-AHM]-

ST – Construction Service – Assessee avails Cenvat credit of tax paid on input service and also abatement allowed by law – law changes from 01.03.2006 – simultaneous availment of credit and abatement disallowed – assessee continued to avail both out of ignorance of the change – when it was notices, the credit availed was reversed – since credit taken was fully reversed, the assessee is entitled to avail abatement: AHMEDABAD CESTAT;

· DR. WRITER’S FOOD PRODUCTS PVT. LTD. Versus COMMR. OF C. EX., PUNE-II [2009 (247) E.L.T. 391 (Tri. - Mumbai)]

Cenvat/Modvat - Inputs, common inputs used in exempted as well as dutiable products - Reversal of credit of duty on inputs used in exempted goods, even though it is reversed after clearance of those goods, would absolve assessee from liability to pay 10% of their price - By such reversal of credit and paying interest thereon, taking/utilizing of credit is undone - Rule 6 of Cenvat Credit Rules, 2004. [paras 5, 6, 7, 8]

· RITURAJ HOLDINGS PVT. LTD. Versus COMMISSIONER OF C. EX., DAMAN[2010 (250) E.L.T. 549 (Tri. - Ahmd.)]

Textiles and textile articles - Exemption - Condition of non-availment of Cenvat credit - Common inputs in dutiable and exempted goods - Credit taken on exempted goods reversed before their removal - It amounts as if no credit is taken, and thereby assessee cannot be denied benefit of exemption under Notification No. 30/94-C.E. [para 3]

In the light of above decisions, it is ample clear that when the credit availed is reversed, it amounts to non availment of Cenvat Credit, as such, the other benefits cannot be denied. In few of the above cited cases, benefit under different notifications like abatement was denied as there was condition in the notifications that credit should not be availed. However, when the assessee reversed the credit availed by them, it was held that the credit reversal along with interest amounts to situation of not taking credit and so the benefit of the notifications should not be denied. Thus, the impugned show cause notice denying the benefit of notification no. 30/2004-CE is not sustainable when the credit availed has already been reversed along with interest. Therefore, the impugned show cause notice should be quashed and the benefit of the notification no. 30/2004-CE availed by them should be upheld.

7) In continuation to the above, they also wish to place reliance on the decision given by Hon’ble High Court of Gujarat in the case of COMMISSIONER OF CENTRAL EXCISE VS ASHIMA DYECOT LTD. [2008(12) S.T.R. 701 (GUJ.)], which was maintained by the Hon’ble Supreme Court, reported as [2009 (240) E.L.T. A41 (S.C.)] wherein the benefit of the notification no. 30/2004-CE was being denied to the assessee on the grounds that they have availed cenvat credit and have not maintained separate accounts for the inputs used for the goods cleared under notification no. 29/2004-CE and notification no. 30/2004-CE and consequently violated the condition of the notification no. 30/2004-CE which prohibits availment of cenvat credit. However, the High Court and the Supreme Court concurred with the view that as the assessee had proportionately reversed the credit attributable to the inputs used for the goods cleared under the notification no. 30/2004-CE, reversal tantamounted to non-availment of cenvat credit and consequently there was no violation of the condition of the notification no. 30/2004-CE. Therefore, the benefit of the exemption notification was extended to the assessee. The synopsis of the above cited case is produced hereunder for the sake of convenient reference as follows:-

COMMISSIONER OF CENTRAL EXCISE VS ASHIMA DYECOT LTD. [2008(12) S.T.R. 701 (GUJ.)]:-

Cenvat - Reversal of credit whether equal to non-availment - Exemption under Notifications No. 29/2004-C.E. and 30/2004-C.E. availed - Notification No. 30/2004-C.E. specific about non-availment of Cenvat credit on inputs when exemption availed - Respondent availed exemption simultaneously under both notifications but not maintained separate accounts - Impugned notifications clarified by C.B.E. & C. as independent and simultaneous availment permissible if separate account maintained - Ratio of Supreme Court decision in 1996 (81)E.L.T.3 (S.C.) applicable and maintenance of separate accounts initially not a pre-condition for claiming exemption - Reversal of credit amounts to non-availment as per High Court ruling in 2004 (174)E.L.T.422 (All.) - Impugned order sustainable - Question of law not arises - Section 35H of Central Excise Act, 1944 - Rules 3 and 14 of Cenvat Credit Rules, 2004. [paras 1, 5, 6, 7, 8]

In light of the above cited decision, the position is very clear and as the facts and circumstances of the above cited case are very much similar to our case, its benefit should be extended to them and the impugned show cause notice denying the benefit of the exemption notification on the sole grounds of availing credit that stands reversed should be set aside.

8) The proviso to Notification no. 30/2004-CE dated 09.07.2004 makes it absolutely clear that non-availment of credit on inputs is a pre-condition for availing the exemption under said notification and if manufacturer avails the cenvat credit on input, it would render them ineligible for claiming the exemption under the said notification. In this regard, they submit that although availing of credit in terms of Rule 16 and reversing the same on the subsequent clearance of the repaired branded goods does not tantamount to taking credit in view of the decision given by the Apex court in the case of CHANDRAPUR MAGNET WIRES (P) LTD. VS COLLECTOR OF C.EX., NAGPUR [1996 (81) E.L.T. 3 (S.C.)] and prima facie the question of denial of the benefit of the exemption under notification no. 30/2004-CE does not arise. However, even if it is accepted for the sake of argument only that the credit has been availed by us, then too, the credit availed by them pertains to branded goods and there is no embargo in availing the same. In this context, they wish to place reliance on the Board Circular No. 795/28/2004-CX., dated 28-7-2004, wherein it has been clarified thatthe assessee can opt for benefit of notification no. 29/2004-CE and notification no. 30/2004-CE simultaneously. The relevant part of this circular is produced as follows:-

“Issue No. (1) :

Can a manufacturer of textiles or textile articles avail full exemption under Notification No. 30/2004-C.E. as well as clear similar or dissimilar goods on payment of duty under Notification No. 29/2004-C.E. simultaneously?

Clarification :

Notification No. 29/2004-C.E. (prescribing optional duty at the rates of 4% for pure cotton goods and 8% for other goods) and No. 30/2004-C.E. (prescribing full exemption) are independent notifications and there is no restriction on availing both simultaneously.However, the manufacturer should maintain separate books of account for goods availing of Notification No. 29/2004-C.E. and for goods availing of Notification No. 30/2004-C.E.”

In view of above clarification, the assessee can avail the benefit of both the notifications simultaneously if he is able to correlate which goods are used in manufacture of branded goods and which goods are used in manufacture of unbranded goods. This is clearly evident from the facts narrated hereabove and witness by the books of accounts maintained by them. Therefore, since the credit availed and dutiable goods cleared are co relatable, the impugned show cause notice demanding excise duty on unbranded goods on the ground that the credit has been availed on the returned branded goods is not tenable, particularly when direct correlation of the credit availed and reversed on the said branded goods is possible.

Furthermore, the clarifications issued by the Board are binding on the departmental authorities and they are bound to follow the same. It has been held in the case of Collector of Central Excise, Bombay v/s Kores (India) Limited [2002-TIOL-414-SC-CX] that the board circulars are binding on the department and the department cannot take a stand contrary to the same. Since the board circulars/instructions are binding on the department, They should be extended the benefit of above clarification and the impugned show cause notice should be set aside.

9)            In continuation to the above, it is also submitted that in view of the above cited submissions, it is very much clear that there is no embargo in simultaneous availment of the benefit of the notification no. 29/2004-CE and notification no. 30/2004-CE. It is also not disputed that the notification no. 29/2004-CE prescribes concessional rate of excise duty and there is no condition for non-availment of the cenvat credit while claiming the benefit of the said notification. Moreover, the issue under consideration is related to denial of benefit of exemption notification no. 30/2004-CE on the grounds that credit has been availed with respect to branded goods. Accordingly, considering the overall submissions, it can be very well concluded that no contravention has been committed on our part as regards satisfaction of the conditions of notification no. 30/2004 and so the pre-condition regarding non-availment of cenvat credit in respect of goods under the notification has not been violated by us. Therefore, they are rightfully eligible for the benefit of the notification no.30/2004-CE and the demand raised vide the impugned show cause notice is not tenable and liable to be set aside.

10)         They further submit that since the demand itself is not justified, the question of paying the interest does not arise at all. Therefore, the impugned show cause notice asking to pay the interest is not sustainable and is liable to be set aside.

11)         They submit that the impugned show cause notice is also proposing to impose the penalty under rule 25 of the CER, 2002 read with section 11AC of the Central Excise Act, 1944. In this regard, the penalty under the provisions of Cenvat Credit Rules, 2004 can be imposed only if any of its provisions are contravened. In the instant case, the case of department is alleging the contravention of provisions of notification no. 30/2004-CE. However, on the basis of above discussion, it is ample clear that since no credit is availed on the inputs used in the manufacture of unbranded readymade garments. As such, the prohibition contained in the above notification is not attracted at all. Therefore the penalty imposed for contravention of this condition is not sustainable and the impugned show cause notice is liable to be set aside.

12)         In continuation to above, it is submitted that even the hon’ble Supreme Court has decided that penalty should not be ordinarily imposed unless there is deliberate in defiance of law. This has been held in the case of Hindustan Steel v. State of Orissa [1978 2 ELT J 159 (Supreme Court)]. In this case it was held that an order imposing penalty for failure to meet statutory obligation is are result of proceedings which are quasi judicial in nature and penalty should not ordinarily be imposed unless the person acted deliberately in defiance of law or was guilty of misconduct or dishonest or acted in conscious disregard of his obligation. In the instant case, the penalty is proposed to be imposed without proving the allegation raised in the show cause notice. However, the submissions made hereabove are sufficient enough to prove that the demand itself is not sustainable, as such, the penalty is also not sustainable. The impugned show cause notice should be quashed and proceedings initiated against them should be withdrawn.

13)         They further submit that the penalty proposed under section 11AC cannot be imposed on them as were under the bonafide belief that they are rightly eligible for claiming the benefit of the exemption notification no. 30/2004-CE and hence have cleared our unbranded goods at nil rate of excise duty. The same belief was supported by the judgment of M/s COMMISSIONER OF CENTRAL EXCISE VS ASHIMA DYECOT LTD. [2008(12) S.T.R. 701 (GUJ.)], which was maintained by the Hon’ble Supreme Court, reported as [2009 (240) E.L.T. A41 (S.C.)] cited above.

Even the highest court of India – Hon’ble Supreme Court has held in the case of COMMISSIONER OF CENTRAL EXCISE, TRICHY Versus GRASIM INDUSTRIES LTD. [2005 (183) E.L.T. 123 (S.C.)] that where the act of assessee is based on the interpretation taken by the Tribunal, penalty cannot be imposed as the act is based on bonafide belief. The verdicts of Apex Court are produced as follows:-

“Penalty - Bona fide belief caused by Tribunal’s decision - Tribunal in a number of cases giving an interpretation as understood by assessee - Penalty not imposable - Rule 173Q of erstwhile Central Excise Rules, 1944 - Rule 25 of Central Excise Rules, 2002. [para 20]”

The analysis of above decision makes it clear that since they have acted under bonafide belief that they are eligible for claiming the exemption under notification no. 30/2004-CE, no penalty can be imposed on us. Therefore, the benefit of above decision of Hon’ble Supreme Court should be extended to them and the whole proceedings should be dropped.
14)         They submitted that similar issue disputing the availment of credit on the goods received under Rule 16 for the purposes of repairing/reconditioning was raised for the period April, 2011 to August, 2011 wherein they were asked to reverse 5% of the value of exempted goods in view of Rule 6 (3) (i) of the Cenvat Credit Rules, 2004. It was submitted that the credit taken was with respect to branded goods cleared on payment of duty that were received for the purposes of repair/reconditioning under Rule 16 and as such, the credit taken was not common credit but was rather specific to the branded goods cleared on payment of duty. The said credit was ultimately reversed on the clearance of repaired branded goods and so the demand for reversal of 5% credit was not tenable. The said factual position was accepted by the adjudicating authority and the proceedings initiated vide the impugned show cause notice were dropped. However, on account of review proceedings, the revenue filed appeal against the said order in original to the Commissioner Appeals and consequently they also filed the cross objections. It is worth mentioning that the appeal filed by the revenue on the even issue has been rejected by the Commissioner Appeals vide Order in Appeal no. 54/2013 (Ahd-I) CE/AK/Commr (A)/Ahd dated 10.10.2013 on the analogy that the credit availed under Rule 16 is not a credit on “input or input service” which is not allowed in terms of Rule 6 (1) of CCR, 2004 but a deeming fiction under Rule 16(1) of the Central Excise Rules, 2002, as the words used are“ as if such goods are received as inputs under the Cenvat Credit Rules”. Therefore, this credit is merely a procedural facility provided to the respondent to avoid double payment of duty on the same goods.

On perusing the above order, it is very clear that the Commissioner Appeals has opined that the credit availed under Rule 16 is only a deeming fiction and is not actually input credit and so the present show cause notice proposing to deny the benefit of notification no. 30/2004 is not sustainable as it cannot be said that they have availed any input credit so as to violate the conditions of the notification. Even if it is assumed that they have taken credit, the same has been already reversed by them along with interest and as such, the show cause notice is baseless and is devoid of any merits.

Reasoning of judgment:-After carefully going through the records of the case including show cause notice and written submissions made, it is found that the issue has already been decided in favour of the assessee and appeal filed by the revenue has been rejected by the Commissioner Appeals. The finding portion of the said OIA is reproduced below:
“12.-----------The credit shown by them in columns 5 details of Cenvat Credit taken ER-1 is not credit taken on input but actually credit taken on the return goods under rule 16 of Central Excise Rules, 2002 which is admissible as they have reversed the cenvat credit lying as on balance and have opted for availing of exemption under Notification no. 30/2004-CE. There is no other procedure available to the respondent as they had paid duty on the branded goods, without availing any input credit, and once the goods are returned they were not suppose to pay duty twice but to take credit of the duty already paid. The said credit is not a credit on “input or input service: which is not allowed in terms of Rule 6(1) of CCR Rules, 2004 but a deeming fiction under Rule 16(1) of CER, 2002 as words used are “as if such goods are received as input under the Cenvat Credit Rules”. Therefore this credit is merely a procedural facility provided to the respondent to avail double payment of duty on the same goods.”
Since the present case is identical to one which is decided by Commissioner (Appeal)-V, Ahmedabad vide OIA no. 54/2013/Ahd-I) CE/AK/Commr(A)/AHD dated 10.10.2013 therefore In light of the above judicial pronouncements, the issue stands decided in favour of assessee. It is also as settled principle of judicial discipline that orders passed by, Commissioner(A) and Tribunal are binding on all adjudicating authorities. The Hon’ble Apex court in case of M/s. Kamalakshi Finance Corporation Ltd. [1991 (55) ELT 433 (SC)] has directed department to pay utmost regard to the judicial discipline and give effect to orders of higher appellate authorities which are binding on them.
Thus, taking in to consideration the submissions made by the assessee duly supported by the judicial pronouncements, the adjudicating authority was of the opinion that the said credit is not a credit on “input or input service” which not allowed in terms of Rule 16(1) of CER, 2002 as the words used are “as if such goods are received as input under the Cenvat Credit Rules”. Therefore, it was concluded that the allegations made in the notice on hand cannot sustain.
Summing up the discussions and findings, it was held that since all other provisions have been substantially complied with by the said assessee, there was no contravention on their part as alleged in the Show Cause notice on hand and they had correctly availed the cenvat credit on returned branded goods under rule 16 of Central Excise Rule, 2002 being admissible to them and consequently they are not liable to pay duty on unbranded goods for non maintaining of separate account as required under rule 6 of Cenvat Credit Rule,2004 as demanded in the Notice. Since, there is no contravention proved on part of the said assessee, the question of imposition of penalty or recovery of interest as proposed in the notice does not arise.

Decision:-Show cause notice dropped.

Conclusion:- The gist of this case is that benefit of an exemption notification cannot be denied by literally reading the provisions contained in the notification and interpreting it in absurd manner. In the present case, the exemption notification contained condition that cenvat credit of inputs should not be availed while claiming the benefit of the said notification. However, the said condition was interpreted as to no credit could be taken by the assessee at all. Moreover, there is no embargo in simultaneously availing the benefit of exemption notification providing nil rate of duty for unbranded goods and notification no. 29/2004 providing concessional rate of excise duty for branded readymade garments. Further, the notification no. 29/2004 also did not restrict availment of cenvat credit. As such, the credit availed with respect to branded goods, whether as input credit or as per Rule 16 of the Cenvat Credit Rules cannot become a hurdle for claiming rightly admissible benefit of exemption contained in the notification no. 30/2004.

Comments

PJ/Case Study/2013-14/89
15 March 2014

Post a Comment

Query

Comments

PJ/Case Study/2013-14/89 15 March 2014

Post a Comment

Query

PJ/Case Study/2013-14/89
15 March 2014