2022 (1) TMI 259 - AT - Central Excise

Tribunal allows appeal, Cenvat credit not to lapse under Notification 30/2004-CE. Recovery and penalties unjustified.

The Tribunal set aside the impugned order, allowing the appeal. It concluded that the balance Cenvat credit should not lapse under the conditional ... Lapse of CENVAT Credit - balance credit after reversing the Cenvat credit lying in balance on inputs, WIP and contained in the final product - benefit of N/N. 30/2004-CE as amended availed - When the notification which prescribed the nil rate of duty but bearing condition that no Cenvat credit should be availed whether Cenvat credit lying in balance after reversal on inputs, WIP and inputs contained finished goods, shall lapse in terms of Rule 11(3)? - HELD THAT:- Since the Notification No. 30/2004-CE dated 09.04.2007 contains the above condition the notification is not absolutely therefore, the situation of the appellant is covered under Rule 11(3)(i) according to which the appellant is required to pay an amount equivalent to Cenvat Credit, if any taken by him in respect of inputs received for used in the manufacture of said final product and is lying in stock or in process or is contained in the final product or lying in stock but if the Notification is absolutely having no condition in terms of Rule 11(3)(ii) the remaining credit shall lapse and shall not be allowed to be utilized - The case of the appellant is covered by rule 11(3) (i) therefore, the remaining credit shall not lapse. One of the contention by the adjudicating authority is that even though the argument of the appellant that the Cenvat credit balance will lapse as per Rule 11(3) only, the product is exempted absolutely is accepted there is no dispute that Notification No. 30/2004-CE has been issued under section 5A of the Central Excise Act, 1944 and the appellants having opted for the same, cannot escape from the obligation relating reversal of balance Cenvat Credit. There is a clear distinction between an absolute exemption and conditional exemption. Therefore, the contention of the adjudicating authority that since the exemption notification was issued under section 5A the appellant is otherwise required to pay balance credit is of no substance and has no basis. The issue has been considered by the tribunal time and again and after interpreting Rule 11(3) (i) and (ii) came to conclusion that in case of conditional notification the assessee is not required to lapse the remaining credit after reversal on input as such, input in process and input contained in finished goods - On the absolute identical issue involving the exemption notification 30/2004-CE the tribunal in THE COMMISSIONER, CENTRAL EXCISE & CGST, ALWAR VERSUS M/S. ORIENT SYNTEX (PROP. APM INDUSTRIES LTD.) [2020 (6) TMI 59 - CESTAT NEW DELHI] held that balance credit shall not lapse in terms of Rule 11(3) of Cenvat Credit Rules, 2004 therefore the issue is no longer res-integra. Appeal allowed - decided in favor of appellant. Issues Involved:1. Whether the Cenvat credit balance should lapse as per Rule 11(3) of the Cenvat Credit Rules, 2004 when availing exemption under Notification No. 30/2004-CE.2. Whether the recovery of Cenvat credit amounting to Rs. 1,57,14,851/- and Rs. 44,44,791/- utilized for payment of duty is justified.3. Whether the demand is barred by limitation under Section 11A of the Central Excise Act, 1944 due to alleged suppression of facts.Detailed Analysis:Issue 1: Lapse of Cenvat Credit BalanceThe core issue is whether the Cenvat credit balance should lapse under Rule 11(3) of the Cenvat Credit Rules, 2004 when the appellant avails the benefit of Notification No. 30/2004-CE, which prescribes a nil rate of duty with the condition that no Cenvat credit should be availed. Rule 11(3) states:“[(3) A manufacturer or producer of a final product shall be required to pay an amount equivalent to the CENVAT credit, if any, taken by him in respect of inputs received for use in the manufacture of the said final product and is lying in stock or in process or is contained in the final product lying in stock, if, -(i) he opts for exemption from whole of the duty of excise leviable on the said final product manufactured or produced by him under a notification issued under section 5A of the Act; or(ii) the said final product has been exempted absolutely under section 5A of the Act, and after deducting the said amount from the balance of CENVAT credit, if any, lying in his credit, the balance, if any, still remaining shall lapse and shall not be allowed to be utilized for payment of duty on any other final product whether cleared for home consumption or for export, or for payment of service tax on any output service, whether provided in India or exported.”From the plain reading of Rule 11(3), it is clear that the balance credit shall lapse only if the exemption is absolute (clause (ii)). In the present case, Notification No. 30/2004-CE is conditional, thus falling under clause (i), which does not mandate the lapsing of the balance Cenvat credit. This interpretation is supported by various judicial decisions, including CCE Vs. Orient Syntex- 2020 (40) GSTL 56 (T), Jansons Textile Processors v. Commissioner -2018 (7) TMI 850-(T), and others, which consistently held that in cases of conditional exemptions, the remaining credit does not lapse.Issue 2: Recovery of Cenvat CreditThe show cause notice dated 22.01.2014 proposed recovery of Cenvat credit amounting to Rs. 1,57,14,851/- on the ground that the same has lapsed as per Rule 11(3) and demanded Rs. 44,44,791/- under Rule 14 of the Cenvat Credit Rules read with Section 11A (4) of the Central Excise Act, 1944, alleging wrongful utilization of lapsed credit for payment of duty. The adjudicating authority confirmed the demand and imposed a penalty, contending that the appellant, by opting for Notification No. 30/2004-CE, could not escape the obligation to reverse the balance Cenvat credit.However, the Tribunal found that since Notification No. 30/2004-CE is conditional, the situation is covered under Rule 11(3)(i), which does not require the balance credit to lapse. Therefore, the recovery of Rs. 1,57,14,851/- and Rs. 44,44,791/- utilized for payment of duty is not justified, as the remaining credit should not lapse under the conditional exemption.Issue 3: Limitation and Suppression of FactsThe appellant argued that there was no suppression of facts, and the demand is barred by limitation under Section 11A of the Central Excise Act. The department was aware of the finished goods manufactured, the exemption notifications availed, and the credit balance carried forward. The appellant had been filing monthly returns with Cenvat details, indicating the nil rate of duty on finished goods under Notification No. 30/2004-CE from 01.04.2007 to August 2011.The Tribunal agreed with the appellant, noting that the department was aware of the facts through the returns filed. Therefore, there was no suppression of facts, and the demand is hit by limitation.Conclusion:The Tribunal set aside the impugned order, allowing the appeal and concluding that the balance Cenvat credit should not lapse under the conditional exemption of Notification No. 30/2004-CE. The recovery of Cenvat credit and the imposition of penalties were found unjustified, and the demand was barred by limitation due to the absence of suppression of facts.