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 under rule 3 before that date. The tribunal ruled that erasure of rule 6(5) only withdrew the privilege of exclusion from general provisions but did not affect credit already taken for inputs/input services consumed before the amendment. Following SC precedents in Eicher Motors, Samtel India, and Dai Ichi Karkaria, the tribunal recognized vested rights in legitimately availed credit. The appeal was allowed as continued eligibility for pre-amendment credit cannot be curtailed retrospectively.

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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.

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