Export Oriented Units can claim CENVAT credit on duty paid under Notification 23/2003 CE as excise duty

The CESTAT Bangalore allowed the appeal challenging recovery of excess CENVAT credit with interest and penalty. The tribunal held that duty paid by 100% Export Oriented Units under Notification No.23/2003 CE constitutes excise duty per Vikram Ispat precedent, making CENVAT credit admissible. The department's denial of credit on Basic Customs Duty and Education Cess components was incorrect. Since the appellant disclosed credit availing in monthly ER-1 returns, no suppression existed, making extended limitation period and penalty unsustainable. The impugned order was set aside.

---

---

Issues Involved:
1. Eligibility to avail CENVAT credit on duty paid by 100% EOU.
2. Whether the demand is barred by limitation.

Summary:

Issue 1: Eligibility to avail CENVAT credit on duty paid by 100% EOU

The appellants, engaged in the manufacture of Pig Iron and Rolled Products, availed CENVAT credit of Rs. 5,42,07,573/- on iron ore received from 100% EOUs during 2012-13 to 2014-15. The Revenue objected, stating that the credit availed on the duty component of Basic Customs Duty (BCD), Education Cess (EC), and Secondary Higher Education Cess (SHEC) of Rs. 2,03,93,277/- was not admissible. The Commissioner held that Rule 3(7)(a) of the CENVAT Credit Rules, 2004 was not applicable, and thus, Rule 3(1) applied, allowing credit only on the duty of excise specified in the First Schedule to the Central Excise Tariff Act, 1985. The duty paid under the proviso to Section 3(1) of the Central Excise Act, 1944, being an aggregate of BCD and Additional Customs Duty, was not covered under Rule 3(1). The Tribunal, referring to the Supreme Court judgment in CCE vs. Suresh Synthetic and the Larger Bench decision in Vikram Ispat vs. CCE, held that the duty paid by a 100% EOU is considered excise duty, and credit is admissible. Therefore, the denial of credit on the component of BCD, EC, and SHEC was contrary to law.

Issue 2: Whether the demand is barred by limitation

The show-cause notice was issued on 14.3.2018 for recovery of CENVAT credit availed during 2012-13 to 2014-15. The appellant argued that their records were periodically audited by the Department, and the availing of CENVAT credit was disclosed in monthly ER-1 returns. The Tribunal found no material evidence supporting suppression of facts by the appellant. The demand invoking the extended period of limitation was unsustainable, and consequently, the penalty imposed was also unsustainable.

Conclusion:

The impugned order was set aside, and the appeal was allowed with consequential relief. The Tribunal held that the appellants were eligible to avail the entire quantum of duty paid by the 100% EOU as CENVAT credit, and the demand was barred by limitation.

---