2023 (9) TMI 1188 - AT - Central Excise

Tribunal remands case on Cenvat credit reversal due to pending Supreme Court appeal

The tribunal set aside the order and remanded the case for a fresh decision following a pending appeal before the Supreme Court regarding the liability to ... Reversal of proportionate Cenvat credit - inputs used and attributed to Sulphuric Acid cleared under exemption Notification No. 4/2006-CE dated 01.03.2006 (Sr. No. 32) on nil rate of duty - HELD THAT:- As per the definition of exempted goods in Rule 2(D)(d)of Cenvat Credit Rules, 2004, the exempted goods is not only the exempted by notification but also the goods bear a ‘nil’ rate of duty also. Therefore, in our prima facie view the Rule 6(3) is applicable, even in a case of kind of this case. However, in one of the judgments in the case of DHARAMSI MORARJI CHEMICAL CO. LTD. VERSUS COMMR. OF C. EX., RAIGAD [2010 (3) TMI 561 - CESTAT MUMBAI] the revenue’s appeal is pending before the Hon’ble Supreme Court. Therefore, it will be in the interest of justice that this matter maybe finally decided only after the Hon’ble Apex Court delivers its judgment in Dharamsi Morarji chemical Co. Ltd. Accordingly, the impugned order set aside and the matter remanded to the Adjudicating Authority for passing a fresh order after the decision of the Hon’ble Supreme Court in the case Dharamsi Morarji chemical Co. Ltd. Appeal is disposed of by way of remand to the Adjudicating Authority. ISSUES PRESENTED AND CONSIDERED 1. Whether the appellant is liable under Rule 6(3)/6(3A) of the Cenvat Credit Rules to reverse proportionate Cenvat credit attributable to inputs used in goods (sulphuric acid) cleared under an exemption notification that effectively results in a nil rate of duty. 2. Whether goods cleared under the procedural conditions of the Central Excise (Removal of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 2001 (i.e., cleared under bond/under conditions of an exemption notification) qualify as 'exempted goods' for the purposes of Rule 2(d)(d) (definition of exempted goods) of the Cenvat Credit Rules, 2004, thereby attracting the reversal obligation under Rule 6(3)/6(3A). 3. Whether earlier decisions premised on the erstwhile Rule 57CC of the Central Excise Rules, 1944, or decided prior to the statutory definition of 'exempted goods' in Rule 2(d)(d) of the Cenvat Credit Rules, 2004, are directly applicable or distinguishable. 4. Whether the matter should be remanded for fresh adjudication in view of a pending decision of the higher court on a directly relevant legal question. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Liability to reverse proportionate Cenvat credit under Rule 6(3)/6(3A) where goods are cleared under an exemption resulting in nil duty Legal framework: Rule 6(3)/6(3A) of the Cenvat Credit Rules prescribes reversal of Cenvat credit attributable to inputs used in the manufacture of exempted goods. Rule 2(d)(d) defines 'exempted goods' to include goods exempted by notification and goods bearing nil rate of duty. Precedent treatment: Earlier tribunal decisions relied upon by the appellant addressed analogous situations under erstwhile Rule 57CC of the Central Excise Rules, 1944, or were rendered before the statutory definition of 'exempted goods' under Rule 2(d)(d) was incorporated in the Cenvat Credit Rules, 2004. Interpretation and reasoning: The Tribunal, on a prima facie construction of the statutory scheme, holds that goods cleared under an exemption notification which in substance attract a nil rate of duty fall within the definition of 'exempted goods' under Rule 2(d)(d). Consequently, Rule 6(3)/6(3A) would be applicable, obliging reversal of proportionate credit attributable to such exempted clearances. The Tribunal notes no express exception in Rule 6(3) excluding goods cleared under conditions (e.g., under bond) from the reversal requirement. Ratio vs. Obiter: The view that a clearance under an exemption notification resulting in nil duty qualifies as 'exempted goods' for the purpose of Rule 6(3)/6(3A) is treated as the Tribunal's prima facie legal conclusion. However, because the Tribunal did not finally decide the issue on merits (see Issue 4), this pronouncement is effectively interlocutory and should be treated as obiter/indicative pending authoritative pronouncement by a higher court. Conclusion: Prima facie applicability of Rule 6(3)/6(3A) to the facts; appellant liable to reverse proportionate credit in law, subject to final authoritative determination. Issue 2 - Characterisation of clearances under the concessional/bond procedure as 'exempted goods' Legal framework: The concessional removal procedure under the Central Excise (Removal of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 2001 permits removal under conditions (bond/authorization) often in conjunction with notifications granting exemption or concessional treatment. Precedent treatment: Tribunal and High Court authorities have taken differing approaches historically-some treating such removals as not constituting exempted goods (particularly where Rule 57CC or earlier regulatory frameworks governed), others treating them as effectively exempt for credit reversal purposes. Decisions pre-dating or addressing different statutory definitions are distinguished. Interpretation and reasoning: The Tribunal reasons that the relevant statutory test is whether the goods are 'exempted' or bear a 'nil' rate under the Cenvat Credit Rules' definition, not the label of the procedural mechanism (bond/authorization) used for removal. Therefore, where the notification in substance results in a nil duty clearance (even though effected under procedural conditions), such clearances fall within 'exempted goods' and trigger reversal obligations under Rule 6(3)/6(3A). Ratio vs. Obiter: The conclusion that procedural clearance under bond does not by itself exempt goods from the definition of 'exempted goods' is part of the Tribunal's prima facie legal position; however, since the Tribunal remanded the matter, this remains provisional guidance rather than a binding final ratio from this decision. Conclusion: Procedural mode of clearance (bond/concessional removal) does not remove a product from the statutory category of 'exempted goods' if the notification or measure produces a nil rate of duty; reversal under Rule 6(3)/6(3A) is thus attracted in principle. Issue 3 - Applicability and weight of earlier authorities decided under Rule 57CC or prior to incorporation of Rule 2(d)(d) Legal framework: Judicial precedents are to be applied in light of the statutory provisions in force at the relevant time; a change in statutory definition or the insertion of a specific statutory test may render earlier decisions distinguishable. Precedent treatment: The Tribunal acknowledges reliance by the appellant on multiple earlier decisions but distinguishes them on the ground that they arose under the erstwhile Rule 57CC or before the statutory definition of 'exempted goods' under Rule 2(d)(d) was available. Interpretation and reasoning: Where a precedent addresses an issue under a materially different statutory regime, it cannot be applied automatically; the Tribunal finds those precedents not directly applicable to the present statutory framework which expressly includes nil-rated goods within 'exempted goods.' Ratio vs. Obiter: The determination that earlier authorities are distinguishable is directly applied to the present decision-making and constitutes part of the Tribunal's dispositive reasoning in remanding the matter for fresh adjudication under the current statutory scheme. Conclusion: Earlier decisions under different rules are distinguishable; applicability must be reassessed in light of Rule 2(d)(d) of the Cenvat Credit Rules, 2004. Issue 4 - Remand in view of pending higher court decision on a directly relevant question Legal framework: Principles of judicial administration permit remand where a pending decision of a higher court on a directly relevant question may determine the proper legal outcome; it is in the interest of justice to await authoritative pronouncement rather than render potentially inconsistent adjudications. Precedent treatment: The Tribunal notes that a controlling appeal in a directly relevant matter is pending before the apex court. Interpretation and reasoning: Although the Tribunal reached a prima facie view on the applicability of Rule 6(3)/6(3A), it held that final adjudication should await the Supreme Court's outcome in the related matter to ensure coherence and avoid conflicting outcomes. Accordingly, the impugned order is set aside and the matter remanded to the Adjudicating Authority for fresh decision after the higher court's ruling. Ratio vs. Obiter: The order to remand is the operative ratio of the Tribunal's disposition: the Tribunal did not decide the merits finally but directed fresh adjudication post the higher court's decision. The remand itself is a binding procedural disposition from this judgment. Conclusion: Matter remanded to the Adjudicating Authority for fresh adjudication following the decision of the higher court in the related matter; impugned order set aside and appeal disposed of by remand.