2024 (1) TMI 932 - AT - Central Excise

Tribunal Clarifies Duty Payment: Cenvat Credit for Excise Only, Cash Required for Customs on Imports, Case Remanded.

The Tribunal set aside the previous order and remanded the case to the Adjudicating Authority for reconsideration, clarifying that duty payment methods ... Debonding of 100% EOU - Validity of Show cause notice - Utilization of CENVAT Credit - payment of duty by 100% EOU can be paid from cenvat credit account while debonding the 100% EOU unit - HELD THAT:- At the time of de-bonding if there is any short fall of duty payment subsequent to the de-bonding of the unit, the custom/excise department is empowered to issue a show cause notice for which no approval of development commissioner is required for issuance of show cause notice, therefore, this submission of the appellant is not sustainable. Refund claim - amount paid from cenvat credit is otherwise refundable under Section 142 of CGST Act, 2017 or not - HELD THAT:- There is proper mechanism for filing refund claim and considering the merit of each case the sanctioning authority of GST department shall dispose of the refund, therefore, at this preliminary stage it cannot be decided that since the appellant can claim the refund of cenvat credit, the entire case is revenue neutral. However, the appellant have liberty to approach the GST authority to claim the refund, if any, in accordance with law. The cenvat credit can be utilized for payment of excise duty either on the finished goods or on the indigenous inputs. However, in case of imported inputs the additional duty of custom has to be paid in cash and not by debiting cenvat credit account in terms of Rule 3 of CCR, 2004 - the matter needs to be re-considered by the Adjudicating Authority - Appeal allowed by way of remand. ISSUES PRESENTED AND CONSIDERED 1. Whether a show cause notice can be issued to a 100% EOU by the customs/excise authority without consultation with the jurisdictional Development Commissioner at the time of de-bonding. 2. Whether duty payable on de-bonding of a 100% EOU can be discharged by debiting the cenvat credit account when such duty arises on imported inputs/raw materials (additional duty of customs) or on indigenous inputs/finished goods (excise duty). 3. Whether payment from cenvat credit in lieu of cash is revenue neutral because the amount may be refundable under Section 142 of the CGST Act, 2017, and if that affects the propriety of demanding cash payment at de-bonding. 4. Remedies available where duty has already been discharged by debiting cenvat but, under legal interpretation, should have been paid in cash. ISSUE-WISE DETAILED ANALYSIS Issue 1: Validity of issuing show cause notice without consultation with Development Commissioner Legal framework: At de-bonding of an EOU, customs/excise authorities have power to examine duty shortfalls and issue show cause notices. No statutory provision requires prior approval of the Development Commissioner for issuance of a show cause notice by customs/excise. Precedent treatment: Appellant relied on prior tribunal and High Court decisions for the proposition that consultation is required; the Court evaluated that contention in light of statutory powers of revenue authorities. Interpretation and reasoning: The Tribunal held that detection of a duty shortfall following de-bonding engages the enforcement powers of customs/excise authorities to issue show cause notices independently. Issuance of such notices is an exercise of departmental adjudicatory/enforcement authority and does not require prior consultation or approval of the Development Commissioner. Ratio vs. Obiter: Ratio - issuance of show cause notices by customs/excise at de-bonding does not require Development Commissioner's consultation; obiter - none relevant. Conclusion: The contention that a show cause notice cannot be issued without consulting the Development Commissioner is not sustainable; the authority may issue a show cause notice on its own jurisdictional power. Issue 2: Whether cenvat credit may be utilized to pay duty at de-bonding for imported inputs vs indigenous inputs/finished goods Legal framework: Central Excise Rules (including Rule 3 of CCR, 2004) and Central Excise/Customs/CENVAT regime govern permissible utilisation of cenvat credit; Rule 17 of Central Excise Rules, 2002 pertains to debiting cenvat credit for payment of excise duty on DTA clearances. Additional duty of customs (commonly referred to as CVD/additional duty on imports) is levied at import stage and, as per Rule 3 CCR, 2004, has specified payment modalities. Precedent treatment: The appellant argued entitlement to use cenvat credit; the Tribunal examined the statutory rules and administrative practice to distinguish between excise duty (indigenous inputs/finished goods) and additional customs duty on imported inputs. Interpretation and reasoning: The Tribunal construed the provisions as drawing a clear line: cenvat credit can be applied to pay excise duties arising on indigenous inputs/finished goods (consistent with Rule 17, Central Excise Rules, 2002), but additional duty of customs attributable to imported inputs must be paid in cash at import and, therefore, cannot be debited to the cenvat account at the time of de-bonding. The Tribunal described this position as 'unambiguous law' under Rule 3 of CCR, 2004 and the applicable excise rules, concluding that imported raw materials' additional customs duty retains its character as a customs duty payable in cash and is not extinguished by subsequent cenvat debits. Ratio vs. Obiter: Ratio - (i) additional duty of customs on imported inputs/raw material must be paid in cash and cannot be debited to cenvat at de-bonding; (ii) duty liability arising on indigenous raw material and finished goods is an excise duty and may be discharged from the cenvat account. Obiter - references to policy or practice underlying revenue neutrality are ancillary. Conclusion: The Tribunal held: (i) imported inputs/additional customs duty - cash payment required; (ii) indigenous inputs/finished goods excise duty - payment from cenvat allowed; and remanded the matter for reconsideration on that basis. Issue 3: Revenue neutrality argument - entitlement to refund under Section 142 CGST and its impact on departmental demand/payment mode Legal framework: Section 142 of the CGST Act, 2017 provides mechanism for refund of tax/credit where entitled; administrative refund processes and adjudication by GST authorities determine entitlement and quantum. Precedent treatment: Appellant relied on authorities supporting that an amount paid by way of cenvat might later be refunded, making the action revenue neutral. The Tribunal considered the availability of refund but distinguished the procedural and substantive stages. Interpretation and reasoning: The Tribunal observed that while a refund remedy exists under Section 142, refund claims are subject to administrative adjudication and merit-based disposal by GST authorities; the prospective possibility of refund does not negate the statutory obligation to pay duties in the correct mode at the time of de-bonding. At the preliminary appellate stage, it is not appropriate to treat the case as revenue neutral merely because a refund claim may later succeed; the appellant retains liberty to pursue refund proceedings before the GST authority. Ratio vs. Obiter: Ratio - the potential for later refund under Section 142 does not validate an incorrect mode of payment at the time of levy nor preclude departmental action to recover duties payable in cash; obiter - guidance that appellant is free to pursue refund in accordance with law. Conclusion: Revenue-neutrality argument cannot, at the adjudicatory stage, displace the clear statutory requirement regarding mode of payment; appellant may seek refund if entitled, but that does not preclude departmental issuance of show cause notices or demand for cash payment where required. Issue 4: Remedy where duty was paid by debiting cenvat but law requires cash payment Legal framework: Rules governing cenvat utilisation and refund provisions under CGST Act; administrative procedure for re-crediting cenvat and claiming refunds. Precedent treatment: The Tribunal noted submissions and statutory provisions allowing re-credit where payment in cash is subsequently made. Interpretation and reasoning: The Tribunal held that if duty was required to be paid in cash but had been debited from cenvat, the appellant may re-credit its cenvat account by depositing cash for the duty liability and then approach the appropriate department to claim refund of the earlier cenvat debit under Section 142/other relevant provisions. The GST refund/sanctioning authority must consider such claims and dispose of them in accordance with law. Ratio vs. Obiter: Ratio - where duty is lawfully payable in cash, the affected party may re-credit cenvat by paying cash and pursue refund of any prior cenvat debit through statutory refund mechanisms; obiter - procedural directions to adjudicating authorities to reconsider matters on remand. Conclusion: Appellant has liberty to re-credit cenvat and claim refund; adjudicating authority must reconsider and decide the matter in accordance with the legal distinctions between imported and indigenous inputs and applicable refund provisions. Overall Disposition and Direction The Tribunal set aside the impugned order and remanded the matter to the Adjudicating Authority for reconsideration consistent with the legal conclusions: (i) additional customs duty on imported inputs must be paid in cash and cannot be discharged from cenvat; (ii) excise duty on indigenous inputs/finished goods may be paid from cenvat; (iii) appellants may re-credit cenvat and pursue refunds under Section 142 CGST where appropriate; and (iv) issuance of show cause notices by customs/excise at de-bonding does not require prior consultation with the Development Commissioner.