2014 (6) TMI 271 - AT - Central Excise

Tribunal grants appeal on exemption choice & allows CENVAT Credit for exported goods

The Tribunal allowed the appeals, determining that the appellants could choose the more beneficial notification when two exemption notifications were ... Choice between concurrent exemption notifications - Applicability of Section 5A(1A) of the Central Excise Act, 1944 - CENVAT credit - interplay of Rule 6(1) and Rule 6(6) of the CENVAT Credit Rules, 2004 - Export under bond - exception to reversal/non-availability of CENVAT credit - Right of assessee to opt for more beneficial fiscal notificationChoice between concurrent exemption notifications - Applicability of Section 5A(1A) of the Central Excise Act, 1944 - Right of assessee to opt for more beneficial fiscal notification - When two notifications - one granting absolute unconditional exemption and the other granting unconditional concessional duty - operate simultaneously, whether the assessee may choose the more beneficial notification and whether Section 5A(1A) applies. - HELD THAT: - The Tribunal held that established Supreme Court and High Court authorities recognise the assessee's right to select, between two concurrently operative notifications, the notification that is more beneficial. Reliance was placed on precedent holding that when two exemption notifications are applicable the assessee may claim the benefit of the more favourable one and authorities must give that benefit. Applying that principle to the facts, where Notification No.29/2004-CE as amended prescribed nil duty and Notification No.59/2008-CE prescribed concessional 4% duty concurrently, the appellants were entitled to elect the notification advantageous to them. Consequently, Section 5A(1A) - invoked by Revenue to prohibit opting for the concessional duty when an absolute exemption also operated - was held not to be applicable in the circumstances where two unconditional notifications operated simultaneously. [Paras 9]Assessee entitled to choose the more beneficial notification; Section 5A(1A) does not apply where two unconditional notifications operate concurrently.CENVAT credit - interplay of Rule 6(1) and Rule 6(6) of the CENVAT Credit Rules, 2004 - Export under bond - exception to reversal/non-availability of CENVAT credit - Whether Rule 6(1) (non-availability/reversal of CENVAT credit for inputs used in manufacture of exempted final products) was attracted, or whether the exception in Rule 6(6) applied when the exempted goods were exported. - HELD THAT: - The Tribunal followed judicial precedents which interpreted Rule 6 of the CENVAT Credit Rules to carve out an exception where exempted final products are exported (including export under bond), thereby rendering Rule 6(1) inapplicable in that situation. Authorities held that the bar in Rule 6(1) and the liability under Rule 6(3)(b) do not apply to inputs used in manufacture of goods which are exempt but exported under bond; denying credit in such circumstances would impermissibly negate the export parity intended by the rules. Applying that reasoning to the appellants - who exported 100% cotton fabrics attracting nil duty after 07.12.2008 and had availed CENVAT credit on inputs - the Tribunal held Rule 6(1) was not attracted and CENVAT credit could not be denied. [Paras 12]Rule 6(1) not attracted where exempted final products are exported; exception under Rule 6(6) applies and CENVAT credit is allowable for the exported goods.Final Conclusion: Appeals allowed: appellants entitled to elect the more beneficial concurrent notification (Section 5A(1A) not applicable) and CENVAT credit availed in respect of inputs used in manufacture of exported exempted 100% cotton fabrics could not be denied under Rule 6(1) because the exception in Rule 6(6) applies for exports during the period 07.12.2008 to 31.03.2009. Issues Involved:1. Choice of Notification and Applicability of Section 5A(1A) of the Central Excise Act, 1944.2. Applicability of Rule 6(1) or Rule 6(6) of the CENVAT Credit Rules, 2004.Issue-wise Detailed Analysis:1. Choice of Notification and Applicability of Section 5A(1A) of the Central Excise Act, 1944:The appellants contended that when two notifications are operative, it is the choice of the assessee to select any notification and either pay duty or avail full exemption. They argued that Section 5A(1A) applies only if there is a single notification exempting goods absolutely. The Revenue, however, argued that the appellants could not opt for payment of duty at 4% under Notification No.59/2008-CE when the goods were unconditionally exempted from payment of duty under Notification No.29/2004-CE as amended on 07.12.2008.The Tribunal found that this issue is no longer res integra and has been decided by the Supreme Court in several cases. In Collector of Central Excise, Baroda Vs. Indian Petro Chemicals, the Supreme Court held that when two exemption notifications are applicable, the assessee can choose the more beneficial one. Similarly, in Share Medical Care Vs. Union of India, the Supreme Court reiterated that if an applicant is entitled to benefits under two different notifications, they can claim the more beneficial one. The Delhi High Court in Grand Card Industries also held that a manufacturer should have the right to choose the more attractive and beneficial option when covered under both the MODVAT scheme and an exemption notification.Based on these precedents, the Tribunal held that when two exemption notifications are operative simultaneously, it is the choice of the appellant to opt for the more beneficial notification. Therefore, the provisions of Section 5A(1A) of the Central Excise Act, 1944, were not applicable in this case.2. Applicability of Rule 6(1) or Rule 6(6) of CENVAT Credit Rules, 2004:The appellants argued that they claimed duty payment and availed CENVAT Credit only when the goods were exported, aligning with Government Policy that duty paid on inputs used in exported goods should be available as a refund. They contended that Rule 6(1) of CENVAT Credit Rules, 2004, was not applicable and Rule 6(6) should apply. They cited several case laws, including Repro India Limited Vs. Union of India, where the Mumbai High Court held that Rule 6(6)(v) allows for CENVAT Credit on inputs used in the manufacture of goods exported under bond, even if the final products are otherwise exempt.The Tribunal noted that the provisions of Rule 6(6)(v) of the CENVAT Credit Rules, 2004, explicitly state that the restrictions of sub-rules (1), (2), (3), and (4) do not apply when the excisable goods are cleared for export under bond. The Himachal Pradesh High Court in Commissioner of Central Excise Vs. Drish Shoes Ltd. also held that an assessee manufacturing goods chargeable to nil duty is eligible for CENVAT Credit on inputs if the goods are exported.In view of these legal positions, the Tribunal concluded that Rule 6(1) of the CENVAT Credit Rules was not attracted in the present case when 100% cotton fabrics attracting nil rate of duty were exported. Therefore, CENVAT Credit was not deniable to the appellants.Conclusion:The Tribunal allowed the appeals, holding that the appellants had the right to choose the more beneficial notification and that CENVAT Credit was permissible under Rule 6(6) of the CENVAT Credit Rules, 2004, for goods exported under bond. The operative part of the order was pronounced in the Court.