2020 (3) TMI 841 - AT - Central Excise

Manufacturer wins appeal for Cenvat credit on slag used as input

The Tribunal allowed the appeal filed by the appellant, a manufacturer of MS ingots, regarding the admissibility of Cenvat credit on slag used as an ... Cenvat credit of duty actually paid on exempted inputs - obligation of receiver to ascertain duty liability of supplier - inapplicability of Board's Circular No.940/1/2011 for denial of credit - recovery and penalty under Cenvat Credit Rules not maintainable where duty paid by supplierCenvat credit of duty actually paid on exempted inputs - obligation of receiver to ascertain duty liability of supplier - Cenvat credit claimed on slag (an input exempted by notification) where duty was in fact paid by the supplier - HELD THAT: - The Tribunal held that where duty has in fact been paid on inputs by the supplier, the recipient manufacturer is entitled to take Cenvat credit of the duty actually paid. The law does not impose on the receiver of inputs an obligation to determine whether the inputs were liable to duty or not; assessment and determination of duty payable is the responsibility of the supplier. The receiving manufacturer need only ensure that duty has been paid and that the inputs are used as inputs; he is not required to re-assess classification or liability of the supplier before availing credit. Decisions of the Tribunal, the High Court and the Supreme Court were followed to support this principle and applied to the facts where slag was purchased and duty had been paid by the supplier.Cenvat credit availed on slag was held admissible and the disallowance set aside.Inapplicability of Board's Circular No.940/1/2011 for denial of credit - Whether Board's Circular No.940/1/2011 can be applied to deny Cenvat credit to the receiver when duty has been paid by the supplier - HELD THAT: - The Tribunal held that the Board's Circular, which presumes recovery of credit taken where duty was not required to be paid, cannot be applied to deny credit against the clear statutory scheme and rules. The Circular does not and cannot impose an obligation on the receiving manufacturer to determine the legal liability of the supplier; application of the Circular to draw adverse conclusions against the assessee would be improper where the statutory rules do not contemplate such a duty on the receiver. The decision of the Tribunal and the High Court emphasising that credit is admissible if duty has actually been paid by the supplier was followed.Board's Circular No.940/1/2011 cannot be applied to deny the Cenvat credit in the present facts; the Circular does not override the statutory scheme.Recovery and penalty under Cenvat Credit Rules not maintainable where duty paid by supplier - Sustainability of recovery of Cenvat credit, interest and imposition of penalty where credit was taken on inputs on which supplier had paid duty - HELD THAT: - Applying the foregoing legal principles and relevant precedents, the Tribunal concluded that the demand for recovery of credit, interest and imposition of penalty could not be sustained. Where there is no finding that duty was not paid by the supplier or that there was loss of revenue, the recipient cannot be burdened with disallowance and penal consequences merely because the goods were described as exempted in a notification. Earlier authorities were relied upon which reversed similar demands where duty had been paid and accepted at the supplier's end. Consequently, the impugned order of disallowance and penalty was set aside.Order of recovery, interest and penalty was set aside and the appeal allowed.Final Conclusion: The Tribunal allowed the appeal, set aside the order disallowing Cenvat credit and the consequential recovery, interest and penalty, and granted consequential reliefs to the appellant in respect of the period November 2009 to August 2014. Issues Involved:1. Admissibility of Cenvat credit on slag.2. Applicability of Exemption Notification No. 4/2006-CE.3. Validity of the recovery of Cenvat credit along with interest and penalty.4. Interpretation of Rule 15(2) of Cenvat Credit Rules, 2004 read with section 11AC of the Central Excise Act, 1944.5. Relevance of Board’s Circular No. 940/01/2011-CX dated 14.01.2011.Issue-wise Detailed Analysis:1. Admissibility of Cenvat Credit on Slag:The appellant, a manufacturer of MS ingots, claimed Cenvat credit on slag used as an input. The department contended that Cenvat credit on slag was inadmissible since slag was absolutely exempted under Exemption Notification No. 4/2006-CE dated 01.03.2006. The Tribunal found that this issue was not res integra, referencing multiple decisions from the Tribunal, High Courts, and the Supreme Court which established that Cenvat credit cannot be denied if duty was paid on inputs, even if those inputs were exempt from duty.2. Applicability of Exemption Notification No. 4/2006-CE:The department argued that under section 5A(1A), manufacturers are barred from removing absolutely exempted goods on payment of duty. However, the Tribunal noted that previous judgments, such as Hindustan Coca-Cola Beverages Pvt. Ltd. vs. CCE, Pune-III, established that once duty was paid on inputs, Cenvat credit cannot be denied on the grounds that such inputs were not liable for duty.3. Validity of the Recovery of Cenvat Credit along with Interest and Penalty:The adjudicating authority disallowed the Cenvat credit amounting to Rs. 27,65,702/- and ordered its recovery along with interest and imposed a penalty of an equal amount under Rule 15(2) of Cenvat Credit Rules, 2004 read with section 11AC of the Central Excise Act, 1944. The Tribunal, however, found that the lower appellate authority's decision to uphold the order-in-original was incorrect, as established by the precedent cases which indicated that the recipient of goods is not required to determine whether the duty was payable on the inputs.4. Interpretation of Rule 15(2) of Cenvat Credit Rules, 2004 read with section 11AC of the Central Excise Act, 1944:The Tribunal referenced the case of Neuland Laboratories Ltd. vs. CCE, Hyderabad-I, which clarified that the receiver of goods is eligible to take Cenvat credit of duty paid and is not required to determine whether the duty was payable. This interpretation was crucial in setting aside the penalty imposed under Rule 15(2) and section 11AC.5. Relevance of Board’s Circular No. 940/01/2011-CX dated 14.01.2011:The department cited the Board’s Circular to argue that Cenvat credit should be recovered when duty was paid on exempted goods. However, the Tribunal, referencing the case of CCE, Chennai-I vs. CEGAT, Chennai, held that there is no provision in the Cenvat Credit Rules, 2004, obligating the receiver of goods to ascertain whether duty was payable by the manufacturer supplier. The Tribunal concluded that the Board’s Circular cannot be applied blindly to deny Cenvat credit.Conclusion:The Tribunal found that the facts of the present case were squarely covered by the cited judgments and held that the impugned order could not be sustained. Consequently, the appeal filed by the appellant was allowed with consequential benefits as per law. The Tribunal emphasized that the recipient of goods is entitled to Cenvat credit of duty paid, irrespective of whether the inputs were exempt from duty, and that the Board’s Circular does not override the provisions of the Cenvat Credit Rules, 2004. The order was pronounced in the open court on 17 March 2020.