2018 (4) TMI 824 - AT - Central Excise

Tribunal grants appellant's cenvat credit claim, emphasizing compliance and supplier non-liability.

The Tribunal ruled in favor of the appellant, allowing all appeals and holding that the appellant is entitled to cenvat credit for Central Excise duty ... Entitlement to Cenvat credit on inputs, capital goods and input services - application of Section 5A(1A) of the Central Excise Act to exemption notifications - effect of conditional exemption notifications on obligation not to pay duty - right of recipient-manufacturer to avail credit of duty paid by the input supplier - irrelevance of DGFT circular on refund of Terminal Excise Duty to question of Cenvat credit - consequential effect on demands and refund rejections arising from denial of creditEntitlement to Cenvat credit on inputs, capital goods and input services - right of recipient-manufacturer to avail credit of duty paid by the input supplier - Appellant entitled to avail cenvat credit on inputs, capital goods and input services notwithstanding contention that supplier should not have paid duty - HELD THAT: - Tribunal found that neither the show cause notice nor impugned orders specified any violation of the Cenvat Credit Rules by the appellant and the Commissioner himself recorded that no charge of breach of those Rules was made (para 13). The denial of credit was founded solely on the assertion that the supplier ought not to have paid duty. Relying on settled authority and prior Tribunal decisions, the Court reaffirmed the legal principle that a manufacturer/recipient is entitled to avail credit of duty actually paid by the input supplier and that assessments at the recipient's end cannot be reopened merely on the ground that the supplier should not have paid duty. Applying that principle to the facts, the appellant - being a recipient and not the supplier/manufacturer of inputs - could not be denied credit on that basis (paras 6, 7). [Paras 6, 7]Credit availed by the appellant is allowable; appellant entitled to cenvat credit.Application of Section 5A(1A) of the Central Excise Act to exemption notifications - effect of conditional exemption notifications on obligation not to pay duty - Section 5A(1A) does not apply where the exemption notification is subject to conditions and not an absolute exemption - HELD THAT: - Section 5A(1A) prescribes that where an exemption under sub section (1) is granted absolutely the manufacturer shall not pay duty. The Tribunal examined Notification No. 22/2003 and observed it imposes various conditions (such as bond) to be fulfilled by the manufacturer supplier; hence the exemption is not absolute. Therefore the statutory mandate in sub section (1A) is not attracted. Even if a supplier breached conditions, the recipient who paid duty could not be penalised by denying credit. The Tribunal thus confined the scope of Section 5A(1A) to absolute exemptions and rejected its application to the facts (para 6). [Paras 6]Section 5A(1A) inapplicable to the conditional exemption in Notification No.22/2003; cannot be a basis to deny credit to the recipient.Irrelevance of DGFT circular on refund of Terminal Excise Duty to question of Cenvat credit - interpretative distinction between refund policy and Cenvat credit entitlement - DGFT circular and decisions concerning refund of TED do not determine entitlement to cenvat credit under Cenvat Credit Rules, 2004 - HELD THAT: - The Tribunal held that the DGFT Policy Circular (15.03.2013) and the Bombay High Court decision in Sandoz (which challenged that circular) relate to the DGFT's refusal to refund Terminal Excise Duty under EXIM policy and are not concerned with availment of cenvat credit under the Cenvat Credit Rules. The reliance placed on those instruments by the lower authority was therefore misplaced and not a valid ground to deny credit (paras 3(c), 4, 9). [Paras 3, 9]DGFT circular and Sandoz decision are not applicable to deny cenvat credit; reliance on them is unsustainable.Consequential effect on demands and refund rejections arising from denial of credit - Proceedings for demands or rejection of refunds consequential to denial of credit shall be decided in favour of the appellant in accordance with the finding on entitlement to credit - HELD THAT: - Having allowed the appellant's entitlement to cenvat credit, the Tribunal held that any consequential actions - including demands raised or refunds rejected that flowed from the earlier adverse view on credit - must follow the principal finding and be resolved in the appellant's favour (para 10). [Paras 10]Consequential demands and refund rejections set aside; directed to be decided in conformity with allowance of credit.Final Conclusion: Appeals allowed: appellant entitled to cenvat credit on inputs, capital goods and input services; Section 5A(1A) and the DGFT refund circular do not provide a basis to deny such credit where the exemption is conditional; consequential demands and refund rejections are set aside and to be decided in accordance with this finding. Issues:Entitlement of the appellant for cenvat credit of Central Excise duty paid on input, capital goods, and service tax paid on input services.Analysis:The judgment revolves around five appeals concerning the appellant's entitlement to cenvat credit on various goods and services. The main issue addressed is the eligibility of the appellant to avail credit on inputs, capital goods, and services. The Revenue contended that as an EOU, the appellant should receive goods and services without payment of duty, leading to the denial of cenvat credit and consequential benefits under Rule 5 of Cenvat Credit Rules, 2004. However, the appellant argued that they had paid duty/tax on the received goods and services, complying with the rules. The Tribunal noted that the appellant, as a recipient, should not be penalized for any violation by the supplier. The provision of Section 5A(1A) was examined, clarifying that exemptions granted absolutely do not apply to the appellant as they are not the manufacturers of the goods. The Tribunal cited various precedents supporting the appellant's position.Regarding the applicability of a circular by the DGFT, the Tribunal emphasized that it does not impact the appellant's eligibility for cenvat credit. The judgment also referenced a decision by the Tribunal in a similar case, emphasizing that manufacturers are entitled to credit for duty paid by the input manufacturer. The Tribunal upheld this principle, citing multiple cases supporting the appellant's stance. The Revenue's argument that a specific notification issued under Section 5A distinguished the present case was rejected by the Tribunal, emphasizing the legal principles involved.The Tribunal further discredited the reliance on a decision by the Bombay High Court, clarifying that it pertained to a different context and did not affect the appellant's cenvat credit eligibility. Ultimately, the Tribunal ruled in favor of the appellant, allowing all appeals and holding that the appellant is entitled to cenvat credit. Consequently, any demands or refund rejections related to the credit were also decided in the appellant's favor based on the findings.In conclusion, the judgment provides a detailed analysis of the appellant's entitlement to cenvat credit, emphasizing legal provisions, precedents, and the distinction between the roles of manufacturers and recipients in claiming such credits. The Tribunal's decision favored the appellant, ensuring their right to avail cenvat credit on duty paid inputs and services.