2023 (4) TMI 710 - AT - Central Excise

Tribunal remands denial of cenvat credit to Sun Pharmaceuticals for inputs from EOU

SUN PHARMACEUTICAL INDUSTRIES LTD Versus C.C.E. & S.T. – SURAT-II

The Tribunal set aside the denial of cenvat credit to M/s Sun Pharmaceuticals Industries Limited for procuring inputs from a 100% EOU. The matter was ... CENVAT Credit in respect of goods procured from 100% EOU - Applicability of formulae prescribed under Rule 3(7)(a) of Cenvat Credit Rules, 2004 - benefit of Serial No. 2 Notification No. 23/2003-CE dated 31/03/2003 has not been availed by appellant - demand of interest and penalty - invocation of extended period of limitation - HELD THAT:- It is seen that Rule 3(7)(a) of Cenvat Credit Rules applies only the duty has been paid at the concessional rate prescribed in Serial No. 2 of Notification No. 23/2003-CE dated 31/03/2003. The appellant has submitted a significant number invoices during hearing. A perusal of these invoices shows that benefit of Serial No. 2 Notification No. 23/2003-CE dated 31/03/2003 has not been availed while payment of duty. Serial No. 2 Notification No. 23/2003-CE dated 31/03/2003 prescribes that the duty shall be calculated at the normal rate for BCD/CVD and thereafter the total duty is reduced by 50%. A perusal of invoices produced by the appellant clearly shows that the duty has not been discharged in this manner. In the appeal memorandum also, the appellant has given a chart on page 90 and 91 as Exhibit 'G'. It has been specifically claimed in respect ofmany entries that benefit of Serial No. 2 Notification No. 23/2003-CE dated 31/03/2003 has not been availed. From the above it is apparent that the observation of Commissioner in the impugned order that duty has invariably been paid under Serial No. 2 Notification No. 23/2003-CE dated 31/03/2003 is prima facie incorrect. The matter needs to be reconsidered by the original adjudicating authority by examining all invoices individually. The provisions of Rule 3(7)(a) of Cenvat Credit Rules would be applicable only in cases where the duty has been paid taking benefit of Serial No. 2 Notification No. 23/2003-CE dated 31/03/2003. Further it is noticed that Tribunal vide order No. 88018 of 2016-SMB dated 22.02.2010 in the appellant's own case has held that the BCD mentioned in the said formula refers to the BCD leviable on the like goods if imported into India. The ratio of the said decision needs to be applied for deciding the cases where the invoices clearly indicate that duty has been paid availing benefit of Serial No. 2 Notification No. 23/2003-CE dated 31/03/2003. In all other cases where duty has not been paid availing benefit of Serial No. 2 Notification No. 23/2003-CE dated 31/03/2003, the registration prescribed under Rule 3(7)(a) cannot be applied. The matter is remanded to the original adjudicating authority for fresh decision - Appeal allowed by way of remand. 1. ISSUES PRESENTED AND CONSIDERED 1. Whether Rule 3(7)(a) of the Cenvat Credit Rules, 2004 is applicable to inputs/capital goods procured from a 100% EOU where the supplier did not avail the benefit under Serial No. 2 of Notification No. 23/2003-CE dated 31.03.2003 (i.e., where duty was not paid in the manner prescribed by Sr. No. 2)? 2. In applying the formula in Rule 3(7)(a), whether the BCD (Basic Customs Duty) component must be taken as the tariff (normal) BCD leviable on like goods if imported into India, or as the concessional BCD rate actually shown/availed on the EOU supplier's invoice under Notification No. 23/2003-CE? 3. Whether demands, interest under Section 11AB and penalties under Rule 15 can be sustained where CENVAT credit was availed on inputs procured from a 100% EOU, including questions of extended period of limitation and suppression of facts? 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Applicability of Rule 3(7)(a) where supplier did not avail Sr. No. 2 benefit Legal framework: Rule 3(7)(a) Cenvat Credit Rules, 2004 prescribes a specific formula for admissible CENVAT credit in respect of inputs/capital goods manufactured by a 100% EOU and cleared to DTA in circumstances where the EOU pays excise duty under section 3 of the Excise Act read with Serial No. 2 of Notification No. 23/2003-CE. Notification No. 23/2003-CE (Sr. No. 2) sets out a concessional duty computation (reduction by 50% after calculating normal BCD/CVD). Precedent treatment: The Tribunal's prior decision in the appellant's own case (Order No. 88018 of 2016-SMB dated 22.02.2010) held that the BCD in the Rule 3(7)(a) formula refers to the BCD leviable on like goods if imported into India (i.e., tariff rate). That ratio was applied where invoices clearly indicate benefit of Sr. No. 2 was availed. Interpretation and reasoning: The Court examined invoices produced by the appellant and observed that many invoices do not show duty discharged in the manner prescribed by Sr. No. 2 (i.e., calculation at normal rate with 50% reduction). Where invoices show no availing of Sr. No. 2, the statutory condition precedent for application of Rule 3(7)(a) is not satisfied. The Rule is expressly tied to goods on which duty is paid 'under section 3 ... read with serial number 2 of Notification No. 23/2003-Central Excise.' Thus Rule 3(7)(a) is inapplicable where the supplier did not avail Sr. No. 2. Ratio vs. Obiter: Ratio - Rule 3(7)(a) applies only where duty has been paid taking benefit of Sr. No. 2 of Notification No. 23/2003-CE. Observation that many invoices did not avail Sr. No. 2 and that adjudicating authority's blanket finding was prima facie incorrect is part of the operative ratio directing remand. Obiter - ancillary comments on entitlement of CENVAT in other scenarios to be decided on remand. Conclusion: The matter must be remanded for individual invoice-wise examination by the original adjudicating authority; Rule 3(7)(a) cannot be mechanically applied to all supplies from EOUs without verifying that Sr. No. 2 benefit was actually availed on those supplies. Issue 2: Correct BCD to be used in Rule 3(7)(a) calculation Legal framework: Rule 3(7)(a) quantifies admissible CENVAT credit as a percentage of [X × {(1 + BCD/100) × (CVD/100)}] (with specified provisos and amendments), where BCD and CVD denote ad valorem rates leviable on the inputs/capital goods. Notification No. 23/2003-CE alters the method of computing duty where Sr. No. 2 is availed. Precedent treatment: The Tribunal's earlier decision in the appellant's own case held that the term 'BCD' in the formula refers to the BCD leviable on the like goods if imported into India (i.e., the tariff/normal BCD), not the concessional rate shown on the supplier's invoice under Sr. No. 2. Interpretation and reasoning: The Court endorsed the prior ratio that BCD for the formula should be the tariff/normal BCD (leviable on like goods if imported) rather than any concessional BCD rate that may have been applied on the EOU invoice. The Tribunal reasoned that the formula is intended to approximate the customs duty components as if goods were imported; accordingly, tariff BCD is the appropriate base. The impugned order's treatment - computing BCD as the concessional rate actually shown/availed on the invoice - was identified as a misinterpretation where Sr. No. 2 is operative. Ratio vs. Obiter: Ratio - BCD in Rule 3(7)(a) is the tariff (normal) BCD leviable on like imported goods and not the concessional BCD rate shown on the EOU invoice when applying the formula in cases where Sr. No. 2 has been availed. Obiter - practical illustrations of recalculation for specific entries are factual and left to adjudication on remand. Conclusion: For cases where Sr. No. 2 of Notification No. 23/2003-CE was availed, the BCD component in Rule 3(7)(a) must be taken as the tariff BCD leviable on like imported goods. The Tribunal's earlier ratio is to be applied in such cases. Issue 3: Entitlement to full CENVAT credit (including SAD/Education Cess), penalty and limitation Legal framework: Rule 3(1) of the Cenvat Credit Rules allows credit of duties of excise on inputs where excise duty has been paid. Rule 3(7)(a) provides a different computational entitlement where Sr. No. 2 is availed; other components (SAD, Education Cess, SHE Cess) are addressed in Rule 3 variants and Notification provisos. Section 11AB deals with interest and Rule 15 Central Excise Rules with penalties. Limitation principles determine applicability of extended period (where suppression or fraud alleged). Precedent treatment: The Court referenced earlier decisions in the appellant's own cases before the Tribunal (Mumbai and Chandigarh) concerning similar issues; the present order applies those holdings where factually appropriate. Interpretation and reasoning: The appellant contended that where the EOU cleared goods on payment of full excise (i.e., without availing Sr. No. 2), the DTA purchaser is entitled under Rule 3(1) to full CENVAT credit of the excise duties (including SAD, Education Cess and SHE Cess as applicable), and that the formula in Rule 3(7)(a) cannot be used to restrict credit in such circumstances. The Court did not decide conclusively on entitlement to SAD/cess or on penalty/interest: instead it directed re-examination of invoices to determine whether Sr. No. 2 was availed and, only then, to apply Rule 3(7)(a) or normal Rule 3(1) entitlements. On limitation and extended period, the appellant's contention that extended period cannot be invoked where no suppression occurred was noted, but the Tribunal remanded for fresh adjudication rather than expressing a final finding. Ratio vs. Obiter: Obiter - observations on entitlement to SAD, Education Cess and SHE Cess where goods were cleared without availing Sr. No. 2, and on limitation/penalty contentions, are left for the adjudicating authority to determine on facts. The operative direction to remand for invoice-wise factual determination is ratioal. Conclusion: Where supplier did not avail Sr. No. 2 and paid duty at full rates, the DTA purchaser's entitlement must be determined under Rule 3(1) (which may include SAD/cess where applicable). Questions of interest, penalty and extended limitation require factual adjudication and are to be decided afresh by the original authority after invoice-wise examination. Operational Conclusion and Direction The impugned order is set aside to the extent it found that duty had invariably been paid under Sr. No. 2 of Notification No. 23/2003-CE. The matter is remanded to the original adjudicating authority for individual invoice-wise determination (i) whether Sr. No. 2 benefit was availed on each invoice, (ii) if Sr. No. 2 was availed, computation under Rule 3(7)(a) must use tariff BCD as per the Tribunal's earlier ratio, and (iii) if Sr. No. 2 was not availed, entitlement to full CENVAT credit and any consequent demand, interest or penalty must be reconsidered in light of Rule 3(1) and relevant law.