2024 (2) TMI 1016 - AT - Central Excise

Deletion of CENVAT Credit Rules 6(5) cannot retrospectively impact credit validly availed under rule 3 before amendment date

CESTAT Mumbai held that deletion of rule 6(5) of CENVAT Credit Rules, 2004 from 31st March 2011 could not retrospectively impact credit validly availed ... Correctness of erasure of credit already availed by prospective invalidation of eligibility for retention of credit that would subject those services already procured and used in manufacture/rendering of services to the test of eligibility once again - deletion of rule 6(5) of CENVAT Credit Rules, 2004 with effect from 31st March 2011 - whether credit availed legally and validly up to 31st March 2011 is entitled to be carried forward in the books for subsequent utilization even if the enabling provision was erased from the Rules on that day? HELD THAT:- The operation of law by erasure of rule 6(5) of CENVAT Credit Rules, 2004 could not impact the credit taken under rule 3 of CENVAT Credit Rules, 2004, at the time of procurement of the impugned services; nor is that entitlement thereof under challenge in the proceedings initiated by the notice issued to the appellant. Proceeding onward, the operation of erasure of rule 6(5) of CENVAT Credit Rules, 2004 would not impact credit relating to ‘inputs’ or ‘input services’, already consumed and not determined as attributable exclusively to production of exempted goods or exempted services as on date of erasure. The amendment was effected only for withdrawal of the privilege of exclusion from the general provisions of the rule 6 of CENVAT Credit Rules, 2004 that permitted retention of credit even after the factum of utilization in or deployment in exempted goods and exempted services become apparent. Consequently, the operation of rule 6(5) of CENVAT Credit Rules, 2004 did not, or does not, impact taking of credit but is only pertinent to the retention of credit and, being exclusion by special provision, would have to operate only with effect from the date on which such exclusion came into effect. It is in this context that the decision of the Hon’ble Supreme Court in EICHER MOTORS LTD. VERSUS UNION OF INDIA [1999 (1) TMI 34 - SUPREME COURT] in SAMTEL INDIA LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE, JAIPUR [2003 (3) TMI 121 - SUPREME COURT] and in COLLECTOR OF CENTRAL EXCISE, PUNE VERSUS DAI ICHI KARKARIA LTD. [1999 (8) TMI 920 - SUPREME COURT] must be seen i.e., non-operation of rule 3 of CENVAT Credit Rules, 2004 both at the threshold and at the time of utilization of the impugned goods/services. It is clear that the ‘vested right’ affirmed by the Hon’ble Supreme Court in re Eicher Motors Ltd clearly applies to the case of the appellant as there is no evidence that the impugned services had been utilized only after 31st March 2011. The continued eligibility for credit cannot be curtailed or impacted - the impugned order does not sustain - appeal is allowed. Issues Involved:1. Entitlement for restoration of credit availed on services used in common for manufacture of exempted and dutiable goods as well as rendering taxable services.2. Retrospective applicability of the deletion of rule 6(5) of CENVAT Credit Rules, 2004.3. Misuse or unlawful utilization of CENVAT credit.4. Vested rights and indefeasibility of accumulated credit.Summary:Entitlement for Restoration of Credit:The appellant, M/s Maharashtra Hybrid Seeds Co Pvt Limited, contested the entitlement for restoration of credit availed on services used for both exempted and dutiable goods, and taxable services from 2011-12. This issue arose due to the deletion of rule 6(5) of CENVAT Credit Rules, 2004, effective from 31st March 2011, which led to a notice for recovery of Rs. 130,47,45,462/- retained in their books for the period from 2011-12 to 2014-15. The Commissioner upheld this recovery along with interest and a penalty of like amount.Retrospective Applicability:The appellant argued that the rescinding of rule 6(5) should not apply retrospectively. The adjudicating authority concluded that the rules prevailing on the date of notice would adjudge deviation from rule 6 of CENVAT Credit Rules, 2004. However, the appellant contended that the deletion did not specifically provide for retrospective effect, citing various Supreme Court and High Court decisions supporting the principle of vested rights.Misuse or Unlawful Utilization:The respondent-Commissioner argued that the erasure of rule 6(5) rendered rule 6(3) applicable, emphasizing that the terms 'allow/allowed' and 'allowed to take/avail' in the rules encompass both availment and utilization of CENVAT credit. The adjudicating authority distinguished between the concepts of 'indefeasibility' and 'vested rights' and misuse or unlawful utilization of credit, asserting that the latter was the issue at hand.Vested Rights and Indefeasibility:The tribunal examined whether credit availed legally up to 31st March 2011 could be carried forward for subsequent utilization. It was noted that the appellant had correctly availed credit before this date. The tribunal emphasized that the deletion of rule 6(5) did not impact credit taken under rule 3 of CENVAT Credit Rules, 2004, and that the vested right affirmed by the Supreme Court in various cases applied to the appellant's situation.Judgment:The tribunal concluded that the continued eligibility for credit could not be curtailed or impacted by the deletion of rule 6(5). Consequently, the impugned order was not sustained, and the appeal was allowed.Order Pronounced:The order was pronounced in the open court on 20/02/2024.