Tribunal exempts Mahindra & Mahindra from credit recovery for area-based exemption, citing automobile cess exclusion.

The Tribunal allowed the appeal by M/s Mahindra & Mahindra Ltd, setting aside the order seeking to recover credit distributed by the registered input service distributor to units entitled to area-based exemption. The Tribunal held that the discharge of 'automobile cess' excluded the units from being considered manufacturers of 'exempted goods' under Rule 2(d) of CENVAT Credit Rules, 2004, thus negating the applicability of Rule 6. Previous judgments emphasizing exemptions limited to basic excise duty were distinguished, leading to the favorable outcome for the appellant.

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Issues Involved:
1. Recovery of credit distributed by the registered input service distributor.
2. Interpretation of 'exempted goods' under Rule 2(d) of CENVAT Credit Rules, 2004.
3. Applicability of Rule 6 of CENVAT Credit Rules, 2004.
4. Relevance of previous judgments and decisions by higher courts.

Detailed Analysis:

1. Recovery of Credit Distributed by the Registered Input Service Distributor:
The appellant, M/s Mahindra & Mahindra Ltd (Automotive Sector), challenged the order of the Commissioner of Central Excise, Mumbai, which sought to recover credit distributed by the registered input service distributor. This credit was distributed to the appellant's unit as well as to the manufacturing units at Rudrapur and Haridwar, which were entitled to area-based exemption under Notification No. 50/2003-CE dated 10th June 2003. The central excise authorities argued that these units were precluded from deriving the benefits of CENVAT Credit Rules, 2004 to the extent of the exemption.

2. Interpretation of 'Exempted Goods' Under Rule 2(d) of CENVAT Credit Rules, 2004:
The appellant contended that the Rudrapur and Haridwar units, although exempt from basic excise duty, were not manufacturing 'exempted goods' as defined in Rule 2(d) of CENVAT Credit Rules, 2004. They argued that 'automobile cess' levied under the Industrial (Development and Regulation) Act, 1951, along with other applicable cesses, was fully discharged by these units. However, the adjudicating authority held that:
- "Exempted goods" means excisable goods exempted from the whole of duty of excise leviable thereon, including goods chargeable to a Nil rate of duty.
- Exemption from excise duty means exemption only from basic excise duty, and any exemption from additional excise duty or cess must be explicitly stated in the notification.

3. Applicability of Rule 6 of CENVAT Credit Rules, 2004:
The appellant argued that the Kandivali unit, part of M/s Mahindra & Mahindra Ltd, received disputed credit distributed in proportion to sales of each unit without reversing credit under Rule 6 of CENVAT Credit Rules, 2004. They cited the Bombay High Court's decision in Mahindra & Mahindra Ltd v. Commissioner of Central Excise, which upheld the legality of discharging 'automobile cess' to exclude the Rudrapur and Haridwar units from being considered as manufacturers of 'exempted goods.'

4. Relevance of Previous Judgments and Decisions by Higher Courts:
The Learned Authorised Representative for the respondent referenced the Tribunal's decision in Fosroc Chemicals India Pvt Ltd v. Commissioner of Central Excise & Service Tax and the Supreme Court's decisions in Bajaj Auto Limited v. Union of India and SRD Nutrients Private Ltd v. Commissioner of Central Excise, which supported the view that exemptions should be limited to basic excise duty. However, the Bombay High Court's decision in Mahindra & Mahindra Ltd provided an elaborate discussion on the intent of Rule 6 of CENVAT Credit Rules, 2004, and held that 'automobile cess' should be excluded from the exemption as it was chargeable on value and not on basic excise duty.

Conclusion:
The Tribunal found that the discharge of 'automobile cess' effaced the coverage of Rule 6 of CENVAT Credit Rules, 2004, for the output of the Rudrapur and Haridwar factories. Consequently, the impugned order was set aside, and the appeal was allowed.

(Order pronounced in the open court on 16/02/2023)

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