Prepared by:- CA Vaibhav Bothra &
 Prayushi Jain
 

CASE STUDY

 
 
 
Introduction:- M/S ISCON SURGICALS LIMITED is engaged in the manufacture of Disposable Syringe/ needle falling under Chapter heading 901800 of the First Schedule to the Central Excise Tariff Act, 1985. During the course of Audit, audit party observed that the appellant had availed and utilised excess Cenvat Credit in respect of Item procured from a 100% EOU. The appellant contented that they have correctly availed Cenvat credit as the goods procured by them had suffered duty under S.NO/ 1 of Notification No. 23/2003-CE. The reply of the appellant was held not to be tenable. The Revenue Department issued Show Cause Notice alleging that the appellant had wrongly availed and utilised excess Cenvat credit by willfully suppressing the facts with intent to evade payment of duty in respect of items procured from a 100% EOU amounting to Rs. 26292/- during the period Nov-2008 to Aug-2009. The adjudicating authority as well as first appellate authority did not consider the appellant’s reply sustainable. Aggrieved by the impugned order appellant applied in CESTAT.

M/s Iscon Surgicals ltd[Final Order A/56755/2013-SM[BR] Dated 30.05.2013
 

Relevant Legal Provisions:

• Notification No. 23/-3-CE dated 13.01.03 of Rule 3(7)(a) of Cenvat Credit Rules, 2004
• No. 22/2009-CE (NT), dated 07.09.2009
• Section 3 of the Central Excise Act, 1944: Duties specified in the First Schedule and the Second Schedule to the Central Excise Tariff Act, 1985] to be levied. — (1) There shall be levied and collected in such manner as may be prescribed, -

 
(a) a duty of excise to be called the Central Value Added Tax (CENVAT) on all excisable goods excluding goods produced or manufactured in special economic zones which are produced or  manufactured in India as, and at the rates, set forth in the First Schedule to the Central Excise Tariff Act, 1985 (5 of 1986);
 
(b) a special duty of excise, in addition to the duty of excise specified in clause (a) above, on excisable goods excluding goods produced or manufactured in special economic zones specified in the Second Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) which are produced or manufactured in India, as, and at the rates, set forth in the said Second Schedule.
 
Providedthat the duties of excise which shall be levied and collected on any excisable goods which are produced or manufactured, -
(i) ------
 
(ii) by a hundred per cent export-oriented undertaking and brought to any other place in India,
 
shall be an amount equal to the aggregate of the duties of customs which would be leviable under  the Customs Act, 1962 (52 of 1962) or any other law for the time being in force, on like goods produced or manufactured outside India if imported into India, and where the said duties of customs are chargeable by reference to their value; the value of such excisable goods shall, notwithstanding anything contained in any other provision of this Act, be determined in accordance with the provisions of the Customs Act, 1962 (52 of 1962) and the Customs Tariff Act, 1975 (51 of 1975).”
 
 
 
Issue Involved:
 
The following issue was made before the Commissioner Appeals:-
Whether credit of goods is tenable to a DTA whose duty has been paid under s.no.1 of NotificationNo. 23/-3-CE dated 13.01.03 by 100% EOU?
 
Brief Facts:- M/S ISCON SURGICALS LIMITEDis engaged in the manufacture of Disposable Syringe/ needle falling under Chapter heading 901800 of the First Schedule to the Central Excise Tariff Act, 1985.
During the course of Audit conducted by the Audit party of the appellant unit, an observation was given that the appellant had availed and utilised excess Cenvat Credit in respect of Item procured from a 100% EOU. The appellant were asked by the Superintendent, Central Excise Range-I, Jodhpur vide letter C. No. GL-3/IAR/ISL/07-08/463 dated 26.08.2009 to deposit the excess amount. The appellant gave reply vide letter No. ISL/EXCISE/09-10 dt. 14.09.2009 that they have correctly availed Cenvat credit. The reply of the appellant was held not to be tenable.
The Revenue Department issued Show Cause Notice no. V(90)30/239/2009/16901 dated 22.10.09 that the appellant had wrongly availed and utilised excess Cenvat credit by willfully suppressing the facts with intent to evade payment of duty in respect of items procured from a 100% EOU amounting to Rs. 26292/- during the period Nov-2008 to Aug-2009.
The appellant were asked to show cause as to why:
(i)      Cenvat Credit amounting to Rs. 26292/- wrongly availed and utilised by us should not be disallowed and recovered from them in terms of Rule 14 of Cenvat Credit Rules, 2004 read with proviso to Section 11A(1) of the Central Excise Act, 1944 alongwith Interest leviable thereon in terms of Rule 14 of the Cenvat Credit Rules, 2004 read with Section 11AB of the Central Excise Act, 1944.
 
(ii)     Penal action should not be initiated against them under Rule 15(2) of the Cenvat Credit Rules, 2004 read with Section 11AC of Central Excise Act, 1944.
The Appellant replied to the above show cause notice vide their letter no. PJ/SCN/I-16/09-10/3085 dated 06.11.2009 in which the following submissions were made:-
That credit of duty on an invoice raised by 100% EOU is allowed on the basis of formula prescribed in rule 3(7)(a) of the Cenvat Credit Rules, 2004. The amount calculated by this formula is the credit of duty. Further credit of education cess and secondary and higher education cess is allowed which is paid by an EOU during DTA clearance. At the time of taking the credit appellant was not aware about this formula and accordingly they took the Cenvat Credit of the CVD, education cess and secondary and higher education cess on CVD However, credit of Education Cess and Secondary and Higher Education Cess was rightly availed by them and the same was not required to be reversed in the light of decision of hon’ble Tribunal in the case of M/s Emcure Pharmaceuticals Ltd. vs Commissioner of Central Excise, Pune-I [2008-TIOL-625-CESTAT-MUM]. In this case it was held that merely because there is no formula prescribed in the Cenvat Credit Rules, 2004 in respect of Education Cess, credit cannot be denied thereof. Thus, applying the ratio of this decision, credit of education cess and SHE cess is duly allowable and they had rightfully availed the same.
 
Further the entire amount of duty paid by an EOU is the Excise duty only. As such, credit of entire duty is available. This is according to proviso to Section 3 of the Central Excise Act, 1944; the complete duty paid by the EOU on DTA clearance is the Excise Duty only. Only quantum of duty is prescribed as aggregate of duties of customs. Going by this analogy, hon’ble Chennai Tribunal has allowed the credit of entire duty paid by EOU. This decision has been given in the case of Hyundai Motor India Ltd. vs Commissioner of C.Ex., Chennai [2007 (220) E.L.T. 162 (Tri. – Chennai)]. Similar view is taken by the hon’ble Tribunal in the case of India Japan Lighting Ltd. vs CCE, Chennai [2004 (064) RLT 0166 (CESTAT-Che.)] It was also reported in Law Crux at2004 (06) LCX 0378. 100% Credit is also allowed in the case of Pepsico India Holdings Ltd. vs Commissioner of C. Ex., Mumbai-II [2001 (130) E.L.T. 951 (Tri. - Mumbai)].
  
The analysis of above decisions made it clear that the entire amount paid by the EOU is the excise duty.
 
Further Impugned show cause notice alleged that they had suppressed facts from the department regarding availment of Cenvat Credit on the PP purchased from 100% EOU. The show cause notice said that they had neither mentioned the same in the ER-1 returns filed nor intimated to the department, therefore, they had wrongly availed and utilized Cenvat Credit amounting to Rs. 49156.12. In this respect, appellant contented that suppression of facts means something required under the law to disclose but one does not discloses but they had not mentioned the same in the ER 1 was not sustainable as the law required that only return had to be filed and there was no requirement to file the details of credit taken individually or to file the copies of invoices. Hence they had not filed the same. But they were maintaining the proper records as required under the law. This was reason that the audit had checked these invoices with record and took the audit para. If they had any intention to willfully suppress the same, they would not have shown the record and bill to them. These all were properly filed and recorded in books of accounts.
Further it was submitted that while taking the Cenvat Credit the appellant relied on the various decisions as reported here above and the penalty is not warranted in cases where the assessee has acted under bona fide belief. It has been held in the following cases that the penalty is not imposable where the assessee has acted under bona fide belief:-
           

1. Sri Krishna Alloys vs Commissioner of Central Excise, Salem [2006 (200) ELT 158 (Tri.-Chennai)]

b)     Asha Pavro Electronics Pvt. Ltd. vs. Commr. Of C. Ex., Mumbai-III [2002 (143) ELT 543 (Tri.-Mumbai)]
        
In the above cases, it has been held that when the assessee acted under bona fide belief based on various case laws, no penalty can be imposed on them. In these decisions it was held that where the assessee has acted under bona fide belief, penalty is not warranted. Since the appellant was also under bona fide belied based on above referred decisions, applying the ratio of above cited decisions penalty should not be imposed on them.
 
The learned Adjudicating Officer did not accept the submissions and passed the impugned Order in original 120/2010- CE – DEMAND dated 29.04.2010 against the appellant. The Cenvat Credit of Rs. 15510/- was disallowed and drop the demand Rs. 10782/- as well as penalty  Rs. 15510/- in terms of the provisions of Rule 15(1) of Cenvat Credit Rules, 2004.
 
Against the order in original passed by the Deputy Commissioner the appellant filed an appeal to the Commissioner of Central excise (Appeals). The appeal was filed by taking following grounds-
The appellant submitted that in the impugned order it was held that the total cenvat credit as per the formula given in the Rule 3 (7) (a) of the Cenvat Credit Rules, 2004 must include the component of Education Cess and Secondary & Higher Education Cess and the appellant had not included the component of the Education Cess & SHE Cess with the CVD while calculating the formula in Rule 3 (7) (a) and therefore, they had taken and utilised excess cenvat credit. In this regard the appellant submitted that the said finding of the learned Adjudicating Authority has been given without giving any elaborate reasoning for holding that the component of Edu. Cess and SHE Cess are to be included in the formula in the said Rule. The learned Adjudicating Authority merely stated that the said cesses are to be included. The appellant submitted that their contention that the cenvat credit of excise duty is allowed under Rule 3(7)(a) but the same is allowed under Rule 3(1) ibid was not considered.
In continuation the appellant submitted that in the formula [X multiplied by [(1+BCD/400) multiplied by (CVD/100)}] given in Rule 3 (7) (a), the CVD will not include the Education Cess and SHE Cess levied on the CVD. It is submitted that Rule 3 (7) (a) only prescribes the manner in which the cenvat credit is to be calculated in case a DTA unit procures goods from an EOU.  Rule 3 (7) (a) prescribes the formula [X multiplied by [(1+BCD/400) multiplied by (CVD/100)}] for calculation of the cenvat credit. It is submitted that the cenvat credit of Education cess and SHE cess taken by the appellant is by virtue of Rule 3 (1) of the Cenvat Credit Rules, 2004. Rule 3 (1) prescribes the duties on which credit can be taken by an assessee.
The contention of the appellant also drew support from judgment given in the case of Shreya Pets Pvt Ltd v/s Commissioner of Central Excise & Customs, Hyderabad-IV [2009 (90) RLT 0246 (CESTAT-Ban)] wherein it was held that “appellants are entitled to avail 100% credit of Education cess on goods supplied to them by a 100% EOU.

1.  The appellant submit that stand taken by the appellant has been clarified by the amendment of Rule 3 (7) (a) of the Rules vide Notification No. 22/2009-CE (NT), dated 07.09.2009. It was provided as under: -

“Provided further that the CENVAT credit in respect of inputs and capital goods cleared on or after the 7th September, 2009 from an export-oriented undertaking or by a unit in Electronic Hardware Technology Park or in a Software Technology Park, as the case may be, on which such undertaking or unit has paid –
1. excise duty leviable under section 3 of the Excise Act read with serial number 2 of the notification no. 23/2003-Central Excise, dated 31st March, 2003 [G.S.R. 266(E), dated the 31st March, 2003]; and

2. the Education Cess leviable under section 91 read with section 93 of the Finance (No. 2) Act, 2004 and the Secondary and Higher Education Cess leviable under section 136 read with section 138 of the Finance Act, 2007, on the excise duty referred to in (A),
 
shall be the aggregate of –
 
I. that portion of excise duty referred to in (A), as is equivalent to –

i. the additional duty leviable under sub-section (1) of section 3 of the Customs Tariff Act, which is equal to the duty of excise under clause (a) of sub-section (1) of section 3 of the Excise Act;

ii. the additional duty leviable under sub-section (5) of section 3 of the Customs Tariff Act; and

II. the Education Cess and the Secondary and Higher Education Cess referred to in (B)”.
The appellant submitted that the further amendment in the rules has clarified that the intention of the Government was to give this benefit but the same is not allowed. Even the impugned order-in-original has not discussed the aforesaid submission of the appellant.
The appellant further submitted that in the impugned order, the learned Adjudicating Authority had held that in view of decision given in Emcure Pharmaceuticals v/s CCE, Pune-I [2008 (225) ELT 513 (Tri-Mumbai)], assessee has taken and utilised excess Cenvat credit amounting to Rs. 21601/- in contravention of Rule 3 (7) (a) of the Cenvat Credit Rules, 2004. In this regard the appellant submits that the learned Adjudicating Authority has given wring interpretation to the judgment given in the Emcure Pharmaceuticals case. It is submitted that in the said judgment it was held that “Rule 3 (7) (a) does not cover all duties paid by EOU as it refers only to availment of credit of duty paid by EOU under Section 3 of the Central Excise Act, 1944.” It was further held that “It appears the objective of the legislature was to restrict availment of credit of BED paid by EOU and not to restrict availment of credit of the other duties leviable under the Finance Act, 1944 (Education Cess) and National Calamity Contingent Duty Act and Additional Duties of Excise (Textile and Textile Articles) Act, etc.” Thus, it is clear that the decision given in Emcure Pharmaceuticals case allows the credit of Education cess to be taken under Rule 3 (1) of the Cenvat Credit Rules and not as part of education cess of the CVD.
 The appellant further submit that the appellant have submitted a number of decisions that the complete duty paid by the appellant is duty of excise and the credit of the same is allowed to them. Reliance was placed on following decisions:-
A. Hyundai Motor India Ltd. vs Commissioner of C.Ex., Chennai [2007 (220) E.L.T. 162 (Tri. – Chennai)]
B. India Japan Lighting Ltd. vs CCE, Chennai [2004 (064) RLT 0166 (CESTAT-Che.)]
C. Pepsico India Holdings Ltd. vs Commissioner of C. Ex., Mumbai-II [2001 (130) E.L.T. 951 (Tri. - Mumbai)].
 
But the learned adjudication officer did not consider the same. He did not distinguish the same. He did not even discuss such case laws.
The appellant submitted that they had bona fidely believed that the component of education cess and SHE cess paid on CVD is not to be included in the CVD when calculating the cenvat credit under Rule 3 (7) (a). However, the Department is contending otherwise. Therefore the question involved herein is that of interpretation of legal provisions. There was no intent to evade payment of duty. This was their bonafide belief based on the above decisions. Therefore, extended period cannot be invoked against the appellant. It is further submitted that even part of the show cause notice was proved to be wrong by the learned Adjudicating Authority. It was held that part of the credit was allowable to the appellant. Therefore, it cannot be said that there was deliberate suppression of facts. But the appellant has acted with bona fide intention and the issue involved is interpretation of the legal provisions therefore, the extended period cannot be invoked against the appellant. This has also been held in the case of M/s Jaihind Projects Ltd v/s CST, Ahmedabad [2010-TIOL-124-CESTAT-AHM].
The appellant further submitted that in the impugned order penalty had been imposed on the appellant. In this regard the appellant submitted that there was no willful suppression on the part of the appellant. The appellant acted on the bona fide belief and therefore no penalty can be imposed as there is no willful suppression on the part of the appellant. This has also been held in the case of M/s ITEL Industries Ltd v/s CCE, Calicut [2010-TIOL-236-CESTAT-BANG]. In this case it was held that “No penalty imposable when there is a question of interpretation”. Further in the case of CCE, Lucknow v/s M/s Rosa Sugar Works [2010-TIOL-82-CESTAT-DEL]. Further, in the case of Audi Automobiles v/s CCE, Indore [2009-TIOL-1289-CESTAT-DEL], penalty was set aside on the ground that the issue involved was that of interpretation of law.
The appellant further submitted that in the impugned order interest is sought to be recovered from the appellant. In this regard the appellant submits that the appellant have only taken the credit by making entry in the Cenvat Credit Account but have not utilised the said credit. Therefore, until the cenvat credit taken is not utilised, there is no harm done to the interests of the Revenue. Therefore, on mere taking of credit without utilisation, interest cannot be demanded. This contention draws support from the judgment given in the case of Commissioner of Central Excise, Delhi-III v/s Maruti Udyog Ltd [2007 (214) ELT 0173 (P & H)] wherein it was held that is the credit is only taken but not utilised, then no interest will be payable on the irregular availment of credit. However, the Board by Circular No. 897/17/2009-CX, dated 03/09/2009 has held that decision given in the Maruti Udyog case is not binding as the judgment relates to erstwhile Rule 57-1 of the Central Excise Rules and does not relates to the provisions of new Cenvat Credit Rules. In this regard the appellant submitted that the Board has sought to nullify the effect of the judgment given by the High Court by passing a Circular. Furthermore, the circular has distinguished the case law on the basis that it relates to old rules and not to new rules. They have not distinguished the same on the basis on analogy drawn in impugned order that when there is no harm to revenue then the interest cannot be charged. Furthermore, there are number of decisions relating to new Rules also wherein it is clearly held that the when the cenvat credit is not utilized then interest cannot be demanded from the assessee
Further in the case of Dey’s Medical v/s Commissioner of C. Ex., Allahabad [2010 (250) ELT 379 (Tri-Del)] it was held that “as the finding of the Commissioner (A) that there was no mala fide intention on appellant’s part and there was no suppression. So, the penalty provisions of Rule 13(2) of Cenvat Credit Rules, 2002 read with Section 11AC of Central Excise Act, 1944 are not attracted. It is well settled that credit taken, but not utilised, is not liable to pay interest. It is clear that appellants had not utilised the credit and it was not refuted in the impugned order. The Tribunal also noted that the appellant had voluntarily debited the credit. Therefore, the imposition of penalty and interest is not sustainable and are set aside.”
The appellant further submitted that in the impugned order it has been held that the judgment given in Commissioner of Central Excise, Trichy v/s Grasim Industries Ltd. [2005 (183) E.L.T. 123 (S.C.)] which was relied upon by the appellant was of no help to them as the said case was distinguished by the Hon’ble Supreme Court in the case of Nirlex Spares Pvt Ltd v/s CCE [2008 (222) ELT 3 (SC)]. In this regard the appellant submits that the judgment of Grasim Industries was distinguished in the Nirlex Spares Pvt Ltd on the facts of the case and not on the issue of imposition of penalty. Thus, the said judgment is applicable to the appellants and the benefit of the said judgment should be extended to them. Thus, the impugned order-in-original is required to be set aside.
Personal Hearing in the case was held on 11.11.2010 where written submissions were also submitted wherein the following additional points were added-
Even the impugned order-in-original has not discussed the aforesaid submission of the appellant. As such, the order is non-speaking on this ground which is not tenable in the light of the decision of hon’ble Supreme Court in the case of Commissioner of Central Excise, Bangalore versus Srikumar Agencies [2008 (232) E.L.T. 577 (S.C.)] that an order passed without considering the submissions of the appellant is a non speaking order and a non speaking order is not legally viable in the eyes of law.
In continuation to above, it is submitted that it has recently been held by hon’ble Banglore Tribunal that credit of Education Cess paid by 100% EOU while DTA clearance is allowed. The verdicts of hon’ble Tribunal are as follows:-
M/s Tyche Industries Ltd Kakinada (A P) Vs CCE, Visakhapatnam [2010-TIOL-810-CESTAT-BANG]
Central Excise - Education Cess paid on inputs procured from 100% EOU available in its entirety as CENVAT credit - Issue no longer res integra - Impugned orders set aside:BANGALORE CESTAT;
As such, the credit of education cess availed on the invoice of 100% EOU is allowed beyond doubt. Therefore, in the light of this decision, the impugned order in original is liable to be set aside.
(c ) Reliance was placed on following decisions:-
A. Hyundai Motor India Ltd. vs Commissioner of C.Ex., Chennai [2007 (220) E.L.T. 162 (Tri. – Chennai)]
B. India Japan Lighting Ltd. vs CCE, Chennai [2004 (064) RLT 0166 (CESTAT-Che.)]
C. Pepsico India Holdings Ltd. vs Commissioner of C. Ex., Mumbai-II [2001 (130) E.L.T. 951 (Tri. - Mumbai)].
 
But the learned adjudication officer has not considered the same. He has not distinguished the same. He has not even discussed such case laws. Such a simple order-in-original which is not paying respect to tribunal decisions is liable to be set aside. In the case of WIPRO COMPUTERS LTD. Versus COMMISSIONER OF CUSTOMS, CHENNAI [2001 (135) E.L.T. 450 (Tri. - Chennai)] (Annexure 3) the Tribunal held “An order not discussing evidence submitted by assessee nor technical literature or trade opinion a non-speaking order and not a legal order - Section 35A of Central Excise Act, 1944”and therefore, the order passed by the Dy. Commissioner is in violation of principles of natural justice and is required to be set aside. Further in the case of ARBINDO LIQUORS LIMITED Versus COMMISSIONER OF CENTRAL EXCISE, NAGPUR [2001 (133) E.L.T. 631 (Tri. - Mumbai)] says that anorder narrates only what the Assistant Commissioner said and not what the assessee said. Such an order does not give any insight to the further appellate authority as to the correctness of the findings. It is for this reason that the principles of natural justice require that any order made in adjudication or in appeal, should be a “speaking” order. So the above order passed against the assessee is not tenable in law because the Learned Adjudicating Authority has not discussed the cases and the submissions that were relied on by the appellant
The appellant have acted on the bona fide belief and therefore no penalty can be imposed as there is no willful suppression on the part of the appellant. This has also been held in the case of M/s ITEL Industries Ltd v/s CCE, Calicut [2010-TIOL-236-CESTAT-BANG]. Further, in the case of Audi Automobiles v/s CCE, Indore [2009-TIOL-1289-CESTAT-DEL], penalty was set aside on the ground that the issue involved was that of interpretation of law. Similar decision has been given in the following case CCE, Jaipur Vs M/s Welkin Polymers (P) Ltd [2010-TIOL-724-CESTAT-DEL].
 
The Commissioner (A) did not accept the contentions of the appellant and the order in appeal Nos. 432 (CB)/CE/JPR-II/2010 was passed rejecting the contentions of the appellant.
 
Aggrieved by the impugned Order in Appeal, the appellant prefer to file this appeal before your good office on following grounds which are without prejudice to each other and independent of the grounds to be taken at the time of personal hearing:-
 
 
Appellant’s Contention:-The appellant submitted that in the order it was held that the total cenvat credit as per the formula given in the Rule 3 (7) (a) of the Cenvat Credit Rules, 2004 must include the component of Education Cess and Secondary & Higher Education Cess and the appellant has not included the component of the Education Cess & SHE Cess with the CVD while calculating the formula in Rule 3 (7) (a) and therefore, they had taken and utilised excess cenvat credit. In this regard the appellant submitted that the said finding of the learned Commissioner (A) has been given without giving any elaborate reasoning for holding that the component of Edu. Cess and SHE Cess are to be included in the formula in the said Rule. The learned Adjudicating Authority has merely stated that the said cesses are to be included. Further, the language contained in this rule also does not indicate anything that the quantum of education cess and secondary and higher education cess are to be included while calculating the amount under the formula prescribed under this rule.
Further it was submitted that the quantum of Education Cess and Secondary and Higher Education Cess are not included in the formula prescribed under rule 3(7)(a) of the Cenvat Credit Rules, 2004. The formula prescribed under this rule covers only the amount of Cenvat and no cess is included therein. If the Education Cess and Secondary and Higher Education Cess were included in this rule, there was no need of amending this rule. Your kind attention is invited to amendment made in this rule vide Notification No. 22/2009-CE (NT), dated 07.09.2009. By issuing this notification, following proviso was added to rule 3(7)(a) -
“Provided further that the CENVAT credit in respect of inputs and capital goods cleared on or after the 7th September, 2009 from an export-oriented undertaking or by a unit in Electronic Hardware Technology Park or in a Software Technology Park, as the case may be, on which such undertaking or unit has paid –
1. excise duty leviable under section 3 of the Excise Act read with serial number 2 of the notification no. 23/2003-Central Excise, dated 31st March, 2003 [G.S.R. 266(E), dated the 31st March, 2003]; and
2. the Education Cess leviable under section 91 read with section 93 of the Finance (No. 2) Act, 2004 and the Secondary and Higher Education Cess leviable under section 136 read with section 138 of the Finance Act, 2007, on the excise duty referred to in (A),
 
shall be the aggregate of –
I. that portion of excise duty referred to in (A), as is equivalent to –
i. the additional duty leviable under sub-section (1) of section 3 of the Customs Tariff Act, which is equal to the duty of excise under clause (a) of sub-section (1) of section 3 of the Excise Act;
ii. the additional duty leviable under sub-section (5) of section 3 of the Customs Tariff Act; and

II. the Education Cess and the Secondary and Higher Education Cess referred to in (B)”.
Thus, the aforesaid amendment made in the rule 3(7)(a) is clear cut evident of the fact that the formula prescribed in this rule previously was restricted to Cenvat portion only. The Education Cess and Secondary and Higher Education Cess were added later on by aforesaid amendment. It these cesses were already included in this formula, there was no need of making this amendment.
 
In continuation, the appellant submitted that in the formula given in Rule 3 (7) (a), the CVD will not include the Education Cess and SHE Cess levied on the CVD. It was submitted that Rule 3 (7) (a) only prescribes the manner in which the CENVAT CREDIT was to be calculated in case a DTA unit procures goods from an EOU which pays duty under serial no. 2 of the notification no. 23/2003.  This rule, as it stood prior to amendment, i.e., before July, 2009; does not prescribe any formula for calculating the credit of Education Cess and Secondary and Higher Education Cess paid by the 100% EOU. So, in such a case, the credit of Education cess and SHE cess is taken by the appellant under provisions of Rule 3 (1) of the Cenvat Credit Rules, 2004. Rule 3 (1) prescribes the duties on which credit can be taken by an assessee. The relevant portion of the said Rule is reproduced hereunder for ready reference: -
3. CENVAT credit.- (1) A manufacturer or producer of final products or a provider of taxable service shall be allowed to take credit (hereinafter referred to as the CENVAT credit) of -
 
“……….(vi) the Education Cess on excisable goods leviable under section 91 read with section 93 of the Finance (No.2) Act, 2004 (23 of 2004);
 
(via) the Secondary and Higher Education Cess on excisable goods leviable under section 136 read with section 138 of the Finance Act, 2007 (22 of 2007);………..”
Thus, it is clear that credit of Education cess and SHE cess is allowed to the assessee under the provisions of Rule 3 (1). The contention of the appellant also draws support from judgment given in the case of Shreya Pets Pvt Ltd v/s Commissioner of Central Excise & Customs, Hyderabad-IV [2009 (90) RLT 0246 (CESTAT-Ban)] wherein it was held that “appellants are entitled to avail 100% credit of Education cess on goods supplied to them by a 100% EOU. Though this judgment is referred in the impugned order in appeal, but its ratio has not been correctly applied while passing the impugned order. In this case, hon’ble CESTAT has allowed the credit of Education Cess and Secondary and Higher Education Cess paid by the 100% EOU. This decision, no where holds the view that the percentage of Education Cess and Secondary and Higher Education Cess are to be included in the formula prescribed under rule 3(7)(a) of the Cenvat Credit Rules, 2004. It simply says that the full credit of Education Cess and Secondary and Higher Education Cess paid by the 100% EOU is allowed. Thus, the contention of the impugned order is not sustainable and is liable to be quashed.
In continuation to above, it is submitted that it has recently been held by hon’ble Banglore Tribunal that credit of Education Cess paid by 100% EOU while DTA clearance is allowed. The verdicts of hon’ble Tribunal are as follows:-
M/s Tyche Industries Ltd Kakinada (A P) Vs CCE, Visakhapatnam [2010-TIOL-810-CESTAT-BANG]
Central Excise - Education Cess paid on inputs procured from 100% EOU available in its entirety as CENVAT credit - Issue no longer res integra - Impugned orders set aside:BANGALORE CESTAT;
As such, the credit of education cess availed on the invoice of 100% EOU is allowed beyond doubt. This decision was discussed in the written submissions filed in personal hearing but it has not found any place in the impugned order. Neither this decision has been referred nor it is distinguished while rejecting the appeal of the appellant by the learned Commissioner (Appeals). Thus, the order has proved to be a non speaking order which is not tenable in the eyes of law. Such a decision is not justified in the light of decision given by hon’ble Apex Court in the case of State of Himachal Pradesh Vs Sardara Singh [2008-TIOL-160-SC-NDPS]. In this case it is decided as follows:-
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;
 
The analysis of this decision makes it clear that the order passed without giving reasons of decision is not justified in the eyes of law. Further in the case of ARBINDO LIQUORS LIMITED Versus COMMISSIONER OF CENTRAL EXCISE, NAGPUR [2001 (133) E.L.T. 631 (Tri. - Mumbai)] it was held that anorder that narrates only what the Assistant Commissioner said and not what the assessee said does not give any insight to the further appellate authority as to the correctness of the findings. It is for this reason that the principles of natural justice require that any order made in adjudication or in appeal, should be a “speaking” order. So the above order passed against the assessee is not tenable in law because the Learned Adjudicating Authority has not discussed the cases and the submissions that were relied on by the appellant. The appeal should therefore be allowed. In the case of appellant also, no reasons have been assigned why the case laws cited by them are not applicable.
The appellant further submitted that the appellant have submitted a number of decisions that the complete duty paid by the appellant is duty of excise and the credit of the same is allowed to them. Reliance was placed on following decisions:-
A. Hyundai Motor India Ltd. vs Commissioner of C.Ex., Chennai [2007 (220) E.L.T. 162 (Tri. – Chennai)]
B. India Japan Lighting Ltd. vs CCE, Chennai [2004 (064) RLT 0166 (CESTAT-Che.)]
C. Pepsico India Holdings Ltd. vs Commissioner of C. Ex., Mumbai-II [2001 (130) E.L.T. 951 (Tri. - Mumbai)].
But the learned Commissioner (A) did not considered the same. He did not distinguish the same.
The same contentions were also submitted in the reply to the order in original. But the contentions of the appellant were not considered and the order was passed without even discussing the same. As such, the order has been passed without even assigning the reasons why these decisions are not applicable in the case of appellant. In a recent decision in the case of The Commissioner of Central Excise Vs. M/S Cable Corporation of India [2010-TIOL-607-HC-MUM-CX], it has been said that “CESTAT – Tribunal is expected to pass an order following principles of natural justice – dealing with all contentions- matter remanded-while deciding the case court is under an obligation to record reasons, however, brief, the same may be as it is a requirement of principles of natural justice. Non observance of the said principles would vitiate the judicial order”. As such, the impugned order passed without assigning the reasons is not justified and is liable to be quashed. It was held by the hon’ble Supreme Court that an order passed without discussing the submissions of appellant is not justified. It has been held in the case of Commissioner of Central Excise, Bangalore versus Srikumar Agencies [2008 (232) E.L.T. 577 (S.C.)] that an order passed without considering the submissions of the appellant is a non speaking order and a non speaking order is not legally viable in the eyes of law. The verdicts of hon’ble Apex court are produced as follows:-
“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]”
The appellant further relied upon the judgment given in WIPRO COMPUTERS LTD. Versus COMMISSIONER OF CUSTOMS, CHENNAI [2001 (135) E.L.T. 450 (Tri. - Chennai)]wherein the Tribunal held “An order not discussing evidence submitted by assessee nor technical literature or trade opinion a non-speaking order and not a legal order - Section 35A of Central Excise Act, 1944”and therefore, the order passed by the Commissioner (Appeals) is in violation of principles of natural justice and is required to be set aside.
  
The appellant further submitted that in the impugned order it has been held that the appellant has deliberately suppressed the facts of excess cenvat credit taken and utilised in respect of items procured from a 100% EOU. It is also alleged that they have not intimated the fact of taking the credit to the Department with intent to evade duty. Accordingly, extended period has been rightly invoked against the appellant. In this regard the appellant submitted that they have not suppressed any facts deliberately with the intent to evade payment of duty. The appellant submitted that they are regularly filing all the prescribed returns to the department. They have been honest in providing all the information as and when required by the department. As far as the availment of credit on Education Cess and Secondary and Higher Education Cess paid by 100% EOU is concerned, it is nowhere prescribed that this is to be intimated to the department. The nature of credit taken or the details of invoices on which credit is taken is not required to be informed to the department as no rule or provision requires it. When there is no requirement of furnishing these details, it cannot be said that non-furnishing of the same amounts to suppression. It has been held by hon’ble Gujarat High Court in the case of APEX ELECTRICALS PVT. LTD. Versus UNION OF INDIA [1992 (61) E.L.T. 413 (Guj.)] that non-furnishing of the information not required under law does not amount to suppression. The verdicts of hon’ble High Court are given as follows:-
“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.”
 
The appellant also submitted that they bonafidely believed that the credit of Education Cess and Secondary and Higher Education Cess was duly allowable to them. In support of this contention they had relied upon many judgments. They had referred the decision of hon’ble Supreme Court in the case of Grasim Industries wherein it was held that penalty was not imposable when the act of assessee was based upon decisions given by the various appellate authorities. This decision was submitted in the reply to show cause notice but while passing the order in original, adjudicating authority held that this decision was distinguished in the case of Nirlex Spares Pvt Ltd v/s CCE [2008 (222) ELT 3 (SC)]. In this regard the appellant submitted that the judgment of Grasim Industries was distinguished in the Nirlex Spares Pvt Ltd on the facts of the case and not on the issue of imposition of penalty. Thus, the decision of M/s Grasim Industries was still applicable and in the light of this decision, no penalty was imposable. But the impugned order in appeal had not distinguished the same and has not given the findings on this submission. Thus, the order has proved to be a non speaking/non-reasoned order. It has recently been decided by the hon’ble Gujarat High Court in the case of CC Vs Essar Oil Limited [2010-TIOL-560-HC-AHM-CUS] as follows:-
“CESTAT is required to pass reasoned speaking orders - while setting aside the order of the Commissioner the Tribunal has not recorded any finding as to in what manner the findings recorded by Commissioner are erroneous or as to why it was required to take a different view.
It is a matter of regret that the Tribunal still continues to ignore the same: Despite there a being plethora of precedents holding that an appellate authority is required to record facts, contentions as well as reasons for arriving at its conclusions, it is a matter of regret that the Tribunal still continues to ignore the same and pass orders like the present one without recording facts or reasons.
The matter is remanded to the Tribunal for taking a fresh decision by a speaking order in accordance with law after affording due opportunity to the parties. :GUJARAT HIGH COURT ; “
It was recently held in M/s Nisha Cements Vs. CCE, Calicut [2010-TIOL-1255-CESTAT- BANG] Order passed by lower Appellate Authority confirming duty demand by neither addressing various grounds raised by assessee nor discussing case law cited and without giving proper findings thereon, not sustainable. So going through the analogy given in the above decisions the above order passed against the assessee was not tenable in law because the Learned Commissioner (A) has not discussed the documents submitted by the appellant.
 
It was further submitted that the issue involved in the appeal relates to interpretation of various legal provisions. It has been decided in various cases that where the issue involves the interpretation of legal provisions, penalty cannot be imposed. In support of this contention, they had cited as no. of decisions in the appeal memorandum like M/s Jaihind Projects Ltd v/s CST, Ahmedabad [2010-TIOL-124-CESTAT-AHM], M/s ITEL Industries Ltd v/s CCE, Calicut [2010-TIOL-236-CESTAT-BANG], M/s Rosa Sugar Works [2010-TIOL-82-CESTAT-DEL], etc. In these cases, penalty was withdrawn due to reason that the issue involved required interpretation of legal provisions. But this submission has not been distinguished. Thus, the order has proved to be a non speaking which is not sustainable in the light of various decisions cited hereabove. Further in the below mentioned cases also it is said that penalty is not imposable when there is a dispute involved in interpretation of law -
PREM FABRICATORS Versus COMMISSIONER OF C. EX., AHMEDABAD-II [2010 (250) E.L.T. 260 (Tri. - Ahmd.)]
Penalty- Imposition of - Bona fide belief about eligibility to exemption and dispute involving interpretation of law - No penalty imposable under Section 11AC of Central Excise Act, 1944. [para 16]
FIBRE FOILS LTD. Versus COMMISSIONER OF CENTRAL EXCISE, MUMBAI-IV [2005 (190) E.L.T. 352 (Tri. - Mumbai)]
Penalty- Interpretation of statutes - No penalty imposable, dispute being bona fide about the interpretation of law - Rule 25 of Central Excise Rules, 2002. [para 7]
VISHAL TRADERS Versus COMMISSIONER OF C. EX., JAIPUR-I [2010 (19) S.T.R. 509 (Tri. - Del.)]
Penalty- Non-payment of tax - Cargo Handling service - Question of interpretation of law caused confusion to both sides - Case not to be held of intention to evade tax - No penalty imposable - Section 76 of Finance Act, 1994. [2009 (14)S.T.R.552 (Tribunal) relied on]. [para 5]
In the light of these decisions also, the penalty is not imposable on the appellant.
On the issue of penalty, learned Commissioner (Appeals) has simple cited the decision of hon’ble Apex Court in the case of Union of India v/s Dharmendra Textile Processors [2008 (231) ELT 3 (SC)] wherein it was held that mens rea is not essential for imposing penalty in civil cases. In this regard it is submitted that for imposing the penalty equivalent to the duty demanded under Section 11AC, it is required to be proved that there was willful suppression of facts by fraud, mis-statement with intent to evade payment of duty. The suppression/willful concealment of facts is necessary if the penalty under this section is required to be imposed as stated by the language of this section. This section reads as follows:-
“11AC. Penalty for short-levy or non-levy of duty in certain cases.-
Where any duty of excise has not been levied or paid or has been short-levied or short-paid or erroneously refunded by reasons of fraud, collusion or any willful mis-statement or suppression of facts, or contravention of any of the provisions of this Act or of the rules made thereunder with intent to evade payment of duty, the person who is liable to pay duty as determined under sub-section (2) of section 11A, shall also be liable to pay a penalty equal to the duty so determined:”
As such, as per language of this section, penalty can be imposed only if the short-payment is due to any of the above referred ingredients. As such, the judgment of the hon’ble Supreme Court has been delivered by ignoring the provisions of this section. It has been held in the case of A-One Granites v State of U.P. (2001)3SCC537; AIR2001 SC 1203; Salmond on Jurisprudence, 12th Edn. Pg 167 that the decision given by the hon’ble Apex Court which has been rendered per incuriam, i.e. by ignoring the provisions of the Act, is not binding under article 141 of the Constitution. The doctrine of per incuriam is an exception of the rule of precedents and it says that any expression resulting from ignorance is not a binding authority and it may be ignored. In the instant case, the mens rea/willful suppression has been mentioned as essential ingredients for the purpose of imposing the penalty u/s 11AC as contemplated by the provisions of the Central Excise Act, 1944. But the hon’ble Supreme Court has rendered decision of Dharmendra Textiles by ignoring this vital fact. As such, it is not binding precedent as per doctrine of per incuriam. In the instant case, there was no willful suppression by the appellant but this is a simple case of taking the cenvat credit of duty as charged in the invoice of the supplier and borne by them. As such, the penalty cannot be imposed upon them by relying on the case of Dharmendra Textiles. Even in a recent case of CCE, Chandigarh V/s. Pespi Foods Limited [2010(260)ELT-481(SC)], the Apex Court has clearly held that the Mensa rea is essential for invoking penalty under Section 11AC. Following the same, the penalty cannot be imposed on us. As such, the impugned order is not tenable and it should be set aside.     
 
The appellant further submitted that in the impugned order interest is sought to be recovered from the appellant. In this regard the appellant submitted that the appellant have only taken the credit by making entry in the Cenvat Credit Account but have not utilised the said credit. Therefore, until the cenvat credit taken is not utilised, there is no harm done to the interests of the Revenue. Therefore, on mere taking of credit without utilisation, interest cannot be demanded. This contention draws support from the judgment given in the case of Commissioner of Central Excise, Delhi-III v/s Maruti Udyog Ltd [2007 (214) ELT 0173 (P & H)] wherein it was held that is the credit is only taken but not utilised, then no interest will be payable on the irregular availment of credit. However, the Board by Circular No. 897/17/2009-CX, dated 03/09/2009 has held that decision given in the Maruti Udyog case is not binding as the judgment relates to erstwhile Rule 57-1 of the Central Excise Rules and does not relates to the provisions of new Cenvat Credit Rules. In this regard the appellant submits that the Board has sought to nullify the effect of the judgment given by the High Court by passing a Circular. Furthermore, the circular has distinguished the case law on the basis that it relates to old rules and not to new rules. They have not distinguished the same on the basis on analogy drawn in impugned order that when there is no harm to revenue then the interest cannot be charged. Furthermore, there are number of decisions relating to new Rules also wherein it is clearly held that the when the cenvat credit is not utilized then interest cannot be demanded from the assessee. This discussion was done in the appeal filed before the Commissioner (Appeal) but the learned Commissioner (Appeal) has not even mentioned it in the impugned order which makes the order non-tenable in the eyes of law due to decisions given by the various appellant authorities as already discussed above.  
The aforesaid verdict of Punjab and Haryana High Court has been followed by the tribunal in number of cases. Some of them are listed below:-

1. PHILIPS CARBON BLACK LTD. Versus COMMISSIONER OF C. EX., BOLPUR [2010 (253) E.L.T. 812 (Tri. – Kolkata)]
2. ASHOKA METAL DECOR (P) LTD. Versus COMMISSIONER OF C. EX., GHAZIABAD [2010 (250) E.L.T. 40 (Tri. - Del.)]
3. RANA SUGAR LTD. Versus COMMISSIONER OF C. EX., MEERUT-II [2010 (249) E.L.T. 247 (Tri. - Del.)]
4. COMMISSIONER OF C. EX., JALANDHAR Versus JAGATJIT INDUSTRIES LTD. [2010 (17) S.T.R. 137 (Tri. - Del.)]
5. TECHNOVA IMAGING SYSTEMS LTD. Versus COMMISSIONER OF C. EX., RAIGAD [2009 (246) E.L.T. 230 (Tri. - Mumbai)]
6. LAFARGE INDIA PVT. LTD. Versus COMMISSIONER OF C. EX., RAIPUR [2009 (245) E.L.T. 533 (Tri. - Del.)]
7. GANTA RAMANAIAH NAIDU Versus COMMR. OF CUS., C. EX. & SER. TAX, GUNTUR [2009 (16) S.T.R. 511 (Tri. - Bang.)]
8. COMMISSIONER OF C. EX., VADODARA Versus M.J. PHARMACEUTICALS INDUSTRIES LTD. [2009 (240) E.L.T. 712 (Tri. - Ahmd.)]
9. M/s Bill Forge Pvt Ltd Vs CCE [2010- TIOL-665-CESTAT-BANG]
10. COMMISSIONER OF CENTRAL EXCISE, PONDICHERRY Versus SUPERFIL PRODUCTS [2009 (237) E.L.T. 551 (Tri. - Chennai)]

When the aforesaid ruling has been followed in number of judgments then the same is binding on all lower formation. As such, the impugned order should be quashed.
 
Further, in the latest decision in the case of IND-SWIFT LABORATORIES LTD. Versus UNION OF INDIA [2009 (240) E.L.T. 328 (P & H)] the honourable HIGH COURT OF PUNJAB & HARYANA AT CHANDIGARH once again held that
Interest - Cenvat/Modvat - Cenvat credit is benefit of duties leviable or paid - Interest liability arises when duty not levied or paid or delay in payment of duties - No liability to pay duty arises at the time of availment of Cenvat credit - Liability to pay duty arises only at the time of utilization of Cenvat credit - Interest not arises even if credit wrongly taken - Interest not payable on amount of Cenvat credit availed and not utilized - Interest cannot be claimed simply for taking credit wrongly as availment by itself not creates any duty liability - Section 11AB of Central Excise Act, 1944 read with Rule 14 of Cenvat Credit Rules, 2004. [paras 9, 10, 11]
Interest - Cenvat/Modvat - Wrong availment of credit - Relevant date for interest - Interest not arises at the time of wrong availment of Cenvat credit - Wrong availment of credit not creates any duty liability - Interest cannot be claimed from date of wrong availment of credit - Interest payable from date of wrong utilization of Cenvat credit - Section 11AB of Central Excise Act, 1944 read with Rules 3 and 4 of Cenvat Credit Rules, 2004. [para 11]
Although the aforesaid decision is relating to latest Cenvat credit Rules, 2004 but the same analogy has been upheld.
 
It was further submitted that Board has clarified vide circular no. 897/2009-CE dt. 03.09.2009, that the interest shall be recoverable when credit has been wrongly taken, even if it has not been utilized, in terms of the wordings of the present Rule 14.  This has been held that the earlier decision of Maruti Udyog Limited was rendered in context of old rules but the latest rules are different. As such, the interest is payable under new rules even if the Cenvat credit is reversed before utilisation. But in its latest verdict, the hon’ble Chennai tribunal in case of  INDO SHELL MOULD LTD. Versus COMMISSIONER OF C. EX., COIMBATORE [2010 (253) E.L.T. 799 (Tri. - Chennai)] has held that  when some verdicts are given by Supreme Court then they should be respected and followed by everyone. In this case the order was passed saying that no interest will be leviable if the Cenvat credit has not been utilized. The citation of this case are-
Interest - Cenvat/Modvat, wrong availment of - Cenvat credit taken but not utilised - Revenue placing reliance on C.B.E. & C. Circular No. 897/17/2009-CX., dated 3-9-2009 clarifying that interest payable - Boards circular while justifying interest curiously stating that order of Supreme Court in Maruti Udyog Ltd. [2007 (214) E.L.T. A50 (S.C.)] a decision and not judgment - Such distinction cannot be made - Whether it is judgment or decision, when delivered by Supreme Court, it has to be respected and followed - Punjab & Haryana High Court in case of Ind-Swift Lab. [2009 (240)E.L.T.328 (P & H)] in context of present Rule 14 of Cenvat Credit Rules, 2004 holding that no interest chargable - No interest payable. [para 4]
Precedent - Supreme Court order or judgment - C.B.E. & C. Circular No. 897/17/2009-CX., dated 3-9-2009 stating that particular decision of Apex Court not judgment - Such distinction cannot be made - Whether it is decision or judgment, when delivered by Supreme Court, same has to be respected and followed. [para 4]
Therefore, in instant case also, it is submitted that though the board has issued the Circular No. 897/17/2009-CX., dated 3-9-2009 but the decision by the Supreme Court in the case of Maruti Udyog Ltd. should be respected and therefore on the credit not utilised, no interest can be leviable.
In continuation to above, it was submitted that it was settled position of law that the Board circular which are going against the statutory provisions are not binding on departmental officers also. Reliance was place on following Apex court decisions:-

1. COMMISSIONER OF C. EX., BOLPUR Versus RATAN MELTING & WIRE INDUSTRIES  [2008 (231) E.L.T. 22 (S.C.)]
2. COMMISSIONER OF CUSTOMS, CALCUTTA Versus INDIAN OIL CORPORATION LTD. [2004 (165) E.L.T. 0257(S.C.)]

 
Following the same, it is clear that the Board circular going against the settled legal position is not binding.

Reasoning of judgment :-after hearing both sides the bench held that the appellant had pleaded that the basic question to be decided in the case was that whether the provision of rule 3(7)(a) restricting the availment of CENVAT credit as per formula prescribed would be applicable, in respect of inputs received from a 100% EOU have suffered duty under S NO.1 of the table Notification no. 23//03 CE.
The effective rate of duty prescribed in serial no. 2 of Notification No.23/03-CE during the different periods and the formulas restricting the cenvat credit in Rule 3(7)(a) are as under:-
 

 
Thus when the duty has been paid in terms of S NO.2 of the table Notification No. 23/03-CE, the Cenvat Credit available in terms of Rule 3(7)(a) does not prescribe any formula restricting the availability  of Cenvat Credit in respect of inputs received from 100% EOU when the EOU has cleared the finished goods on payment of duty under S. NO. 1 of the table to the Notification 23/03-CE.
Though the excise duty payable to DTA clearances of a 100% EOU paying duty under S NO.2 of the table to the Notification No. 23/03-CE has basic Customs Duty component also, the cenvat credit available is confined only to the component compromising of Additional Customs Duty(also called contravailing   duty). Therefore on this basis, it can be said that though Rule 3(7)(a) does not mention any formula restricting the credit when the inputs received from a 100% EOU have suffered duty under notification 23/03-CE i.e. duty paid on the goods is basic customs plus additional duty plus sp. Additional customs duty if any, payable, plus education cess and S&H cess, the cenvat credit available would be confined only to the additional customs duty plus sp. Additional customs duty if payable plus education cess and S&H cess.
 It was held that if in this case, the appellant’s plea that the duty on inputs has been paid under S NO.1 of the table to the Notification No. 23/03-CE is correct then they had correctly taken the credit of Additional customs duty plus education cess and S&H cess component. However if the inputs have suffered duty under S NO.2 of the table to the Notification No. 23/03-CE the Cenvat credit entitlement shall be as per the formulas prescribed in rule 3(7)(a). Since no finding was given on appellant’s plea that the inputs received from 100% EOU have suffered the duty on inputs under S NO.1 of the table to the Notification No. 23/03-CE this plea was required to be examined for which the matter was remanded.
Further the order was set aside and the matter was remanded to the original adjudicating authority for de-novo decision after ascertaining as to act whether the inputs received by the appellant have suffered duty in terms of S No. 23/03-CE. If this claim of appellant was credit than their Cenvat Credit availment would be correct and the formula prescribed under rule 3(7)(a) would not be applicable. It was further held that these formulas would be applicable only if the inputs received from a 100% EOU, had suffered duty in terms of S NO.2 of the table Notification No. 23/03-CE.

Decision:-matter remanded

Conclusion:- the gist of this case is that if duty on inputs procured by 100% EOU has been paid under S NO.1 of the table to the Notification No. 23/03-CE than its credit can be availed. However if the goods suffered duty under S NO.2 of the table to the Notification No. 23/03-CE the Cenvat credit entitlement shall be as per the formulas prescribed in rule 3(7)(a).

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