2024 (1) TMI 445 - AT - Central Excise

CENVAT credit dispute resolved as tipper trucks cleared under SFIS scrips not considered exempted goods under Rule 6

CESTAT Bangalore ruled in favor of appellant regarding CENVAT credit dispute. Revenue sought to recover 6% of value of exempted goods with interest and ... CENVAT credit - clearance of exempted goods without following the procedures laid down under Rule 6 of CENVAT Credit Rules, 2004 - duty paid by the appellant by debiting SFIS (Served from India Scheme) scrips for clearance of tipper trucks during the relevant period - recovery of 6% of the value of the exempted goods with interest and penalty - HELD THAT:- The Appellate Tribunal in its impugned order had held that appellant had cleared the dutiable finished goods by debiting the same under SFIS (Served from India Scheme). There is no dispute as regards the correctness of said certificates and debits made therein. Such clearances made by appellants under Notification No. 34/2006-C.E. would not be considered as exempted clearances and the appellant is not required to pay amount equal to 10% of the value of goods cleared by availing benefit of said notification. In the clearance of 131 Nos. of tipper trucks, the scrips utilised for debiting the duty in availing exemption Notification No.34/2006-CE dated 14.06.2006 as amended vide Notification No.15/2013-CE dated 18.04.2013, would not be considered as exempted goods; hence, Rule 6 of CENVAT Credit Rules, 2004 cannot be attracted. The impugned order is set aside - Appeal allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether clearances of finished goods by debiting SFIS duty-credit scrips under the relevant notification amount to clearance of 'exempted goods' within the meaning of Rule 2(d) of the CENVAT Credit Rules, 2004. 2. Whether Rule 6 (including sub-rule 3) of the CENVAT Credit Rules, 2004 (obligation to reverse CENVAT credit on clearances of exempted goods) is attracted where duty is discharged by debiting SFIS scrips. 3. Whether interest and penalty confirmed for alleged failure to maintain separate accounts / reversal under Rule 6 are sustainable where clearances were effected by debiting SFIS scrips and relevant statutory and administrative clarifications/precedents treat such debits as discharge of duty. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Characterisation of clearances effected by debiting SFIS scrips as 'exempted goods' Legal framework: Rule 2(d) of the CENVAT Credit Rules, 2004 defines 'exempted goods' as excisable goods which are exempt from the whole of duty of excise leviable thereon. The relevant notification permits clearance against SFIS scrips with a condition that duties leviable, but for the exemption, shall be debited on the scrip. Administrative instructions (Board circular) and the conditions of the notification govern the effect of debiting the scrip. Precedent Treatment: The Tribunal's earlier view in related matters, endorsed by the High Court in a reported judgment, treats debiting of SFIS/DEPB-type scrips as equivalent to discharge/payment of duty and not as an exemption. Subsequent Tribunal benches have followed that approach. The Board issued an explanatory circular treating debit in duty-credit scrips as payment for the purposes of Rule 6. Interpretation and reasoning: The Court examined the notification's conditions requiring production of the original certificate and explicit debit of duties 'leviable on the goods.' Those procedural and textual requirements indicate that the scrip debit operates as a mechanism of duty discharge akin to payment, comparable to debits in letters of undertaking for export clearances which are treated as duty discharge subject to proof. The Board's circular confirms that the debit in duty-credit instruments should be treated as payment for determining applicability of Rule 6. Ratio vs. Obiter: Ratio - where a notification conditions clearance on debit of duties on the scrip and permits CENVAT credit of duties debited in the scrip, such debit constitutes discharge/payment of duty and the cleared goods are not 'exempted goods' under Rule 2(d). Obiter - comparative remarks regarding functional similarity between SFIS and DEPB schemes (supporting reasoning) are ancillary. Conclusion: Clearances effected by debiting SFIS scrips do not constitute clearances of 'exempted goods' for the purposes of Rule 2(d) and related provisions; they are to be treated as duty-paid for the purposes of the CENVAT Credit Rules. Issue 2 - Applicability of Rule 6 (reversal) where duty is discharged by SFIS scrip debit Legal framework: Rule 6(3) of the CENVAT Credit Rules, 2004 requires payment of an amount (or reversal) when inputs/input services/capital goods are used in the manufacture of exempted goods, with further procedural requirements for accounting. The rule's operation depends on whether the finished goods are 'exempted goods' within the rule's meaning. Precedent Treatment: The Board's Circular (F.No. 267/48/2012-CX.8 dated 04.09.2013) considered representations that clearances against duty-credit scrips were being treated as exempted and clarified that debit of duty on such scrips shall be treated as payment of duty for the purpose of Rule 6, thereby excluding the reversal obligation. The High Court and multiple Tribunal decisions have adopted the same position, holding that clearances against SFIS/DEPB style scrips do not attract the reversal under Rule 6. Interpretation and reasoning: Given that the notification requires debit of duties on the scrip and the scrip-holder may avail CENVAT credit of those debited duties, the debit functions as a mechanism equating to payment; thus, Rule 6 (which targets exempted clearances where no duty is discharged) is not triggered. The administrative clarification explicitly directs field formations that Rule 6(3) is not applicable to clearances under specified duty-credit notifications; that clarification is authoritative for interpretation and implementation. Ratio vs. Obiter: Ratio - Rule 6 reversal is not attracted where the statutory notification and administrative circular treat scrip debit as discharge of duty; consequently no amount under Rule 6(3) is payable. Obiter - policy comparisons between schemes are supportive but not necessary to the legal conclusion. Conclusion: Rule 6 of the CENVAT Credit Rules, 2004 does not apply to clearances where the duty liability has been discharged by debiting SFIS duty-credit scrips; reversal or payment under Rule 6(3) is not required in such cases. Issue 3 - Sustainment of interest and penalty for alleged non-compliance with Rule 6/accounting where SFIS scrips were debited Legal framework: Interest and penalty under excise law are consequential on confirmed duty demands or on established failure to comply with statutory obligations (such as reversal/maintenance of accounts required for exempted clearances). If the threshold obligation (reversal because goods are exempt) is absent, corollary interest/penalty claims lack foundation. Precedent Treatment: Decisions following the High Court and the Board circular have logically treated ancillary demands (reversals/interest/penalties) as unsustainable where the core legal position (debit = duty payment) negates the primary liability. Interpretation and reasoning: Since clearances effected by SFIS debit are treated as duty-paid, the statutory trigger for requiring reversal, separate accounts, or payment under Rule 6 does not arise. Therefore, interest and penalty premised on alleged failure to reverse or maintain separate accounts are unwarranted. The Tribunal set aside the order confirming demand, interest and penalty, and granted consequential relief as per law. Ratio vs. Obiter: Ratio - where no substantive duty reversal obligation exists because scrip debit equals duty payment, interest and penalty based on such reversal obligation cannot be sustained. Obiter - observations about disclosure in AR-1 returns and procedural compliance are supportive but not necessary to disposition. Conclusion: Confirmed interest and penalty founded on an assumed obligation to reverse CENVAT credit under Rule 6 are not sustainable where the clearance was effected by debiting SFIS scrips that amount to duty discharge; such ancillary demands are to be set aside. Cross-References and Final Disposition Cross-reference: Issues 1 and 2 are interdependent - characterization of scrip-debited clearances as non-exempt (Issue 1) directly determines inapplicability of Rule 6 reversal (Issue 2) and thereby negates consequent interest/penalty (Issue 3). Disposition: Applying the notification conditions, the Board circular, and the consistent judicial treatment, the Court held that clearances by debiting SFIS scrips are not 'exempted goods' and that Rule 6(3) reversal (and related interest/penalty) does not apply; the impugned demand, interest and penalty were set aside with consequential relief as per law.