2024 (12) TMI 1654 - AT - Central Excise

Rule 3 allows cenvat credit on quantity actually received; recovery under Rule 14 read with Section 11A disallowed

CESTAT MUMBAI - AT held that Rule 3 of the Cenvat Credit Rules permits availing credit based on the quantity actually received in the manufacturer's ... Availment of CENVAT Credit - requirement to take proportionate Cenvat credit in respect of the quantity actually loaded at the Kochi Refinery - contravention of provisions of Rule 3 of the Cenvat Credit Rules, 2004 - HELD THAT:- Insofar as consideration of Rule 3 ibid is concerned, it has been mandated that a manufacturer of final products shall be allowed to take Cenvat Credit of various duties and taxes mentioned therein, which are paid on the inputs or capital goods, received in the factory of the manufacture of the final products. On reading of the said statutory provision, it reveals that the Central Excise duty either on ad valorem basis or on specific rate basis paid on the quantity actually received in the factory, should be considered for the purpose of availing credit of the duty paid thereon. In the present case, though the Kochi Refinery of the appellants had issued the invoice, mentioning certain quantity therein, which were dispatched to the appellants for use/utilization in the Mumbai Refinery, but on the basis of actual quantity received at the Mumbai Refinery, the appellants had availed Cenvat Credit both on the ad valorem rate as well as on specific rate paid at the Kochi Refinery. The modus operandi adopted by the appellants in receipt of the goods and taking of Cenvat Credit on the quantity actually received by the Mumbai Refinery, is in conformity with Rule 3 ibid. There was no scope or occasion for the department to allege that taking of Cenvat Credit on the disputed amount is not in conformity with the said Rule 3 ibid and thus, the same cannot be recovered by taking recourse to Rule 14 ibid read with Section 11A of Central Excise Act, 1944. There are no merits in the impugned order, insofar as it has confirmed the adjudged demands on the appellants - the impugned order is set aside and the appeal is allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether Cenvat credit under Rule 3 of the Cenvat Credit Rules, 2004 may be availed by a manufacturer on the basis of the quantity of inputs actually received at the factory of manufacture, where invoices issued by a related refinery show a different (dispatched/loaded) quantity. 2. Whether taking Cenvat credit on the quantity actually received at the receiving factory contravenes Rule 3 and thereby permits recovery of the credit by invoking Rule 14 read with Section 11A of the Central Excise Act, 1944. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Legal framework Rule 3, Cenvat Credit Rules, 2004: A manufacturer of final products is permitted to take Cenvat credit of duties/taxes paid on inputs or capital goods received in the factory of manufacture of the final products. The statutory text requires consideration of duty paid on the quantity actually received in the factory for the purpose of availing credit. Issue 1 - Precedent Treatment No authority or precedent was invoked or considered in the judgment; the Tribunal's analysis proceeds from the statutory text of Rule 3. Issue 1 - Interpretation and reasoning The Tribunal interprets Rule 3 as entitling credit on duties paid in respect of the quantity actually received in the factory where the final product is manufactured. Where an intra-company refinery issues an invoice mentioning a certain dispatched/loaded quantity, the decisive fact under Rule 3 is the quantity actually received and measured at the receiving refinery. The appellants measured the received quantity by devices at the receiving factory and availed Cenvat credit on that measured quantity for both ad valorem and specific duties paid at the supplying refinery. That practice, the Tribunal held, conforms to the statutory requirement that credit relates to inputs 'received in the factory.' Issue 1 - Ratio vs. Obiter Ratio: A manufacturer may lawfully take Cenvat credit under Rule 3 on duties paid in respect of the quantity actually received in the factory of manufacture, even where the supplier's invoice records a different (loaded/dispatched) quantity. Issue 1 - Conclusion The Tribunal concluded that taking Cenvat credit on the basis of actual quantity received at the Mumbai refinery was consistent with Rule 3 and therefore permissible. Issue 2 - Legal framework Rule 14, Cenvat Credit Rules, 2004 and Section 11A, Central Excise Act, 1944: Rule 14 prescribes recovery mechanisms for erroneous credits/claims in certain circumstances; Section 11A provides for recovery of duties and interest in adjudication. The question is whether an allegation of contravention of Rule 3 supports recovery proceedings under Rule 14 read with Section 11A. Issue 2 - Precedent Treatment No prior decisions were applied or distinguished; the Tribunal's assessment is directed at the applicability of recovery provisions to the facts and statutory interpretation of Rule 3. Issue 2 - Interpretation and reasoning The Tribunal reasoned that since Rule 3 requires credit to be taken in respect of quantities received in the factory, and the appellants in fact took credit in respect of the quantities actually received and measured at their receiving factory, there was no contravention of Rule 3. Absent contravention, there was no lawful foundation for the department to invoke Rule 14 read with Section 11A to recover the disputed credit. The correctness of the appellants' modus operandi (measuring receipt quantity at the receiving factory and availing credit thereon) negated the department's premise that credit should be proportionate to quantities loaded at the supplying refinery. Issue 2 - Ratio vs. Obiter Ratio: Recovery under Rule 14 read with Section 11A cannot be sustained where the credit was legitimately taken in accordance with Rule 3 on the quantity actually received in the manufacturing factory; absence of contravention of Rule 3 defeats the recovery claim. Issue 2 - Conclusion The Tribunal found no merit in the adjudication confirming demands; the impugned order was set aside and the appeal allowed because the appellants' taking of Cenvat credit on the received quantity complied with Rule 3 and did not justify recovery under Rule 14/Section 11A. Cross-reference The conclusions on Issue 1 and Issue 2 are interdependent: the interpretative determination that Rule 3 looks to the quantity 'received in the factory' (Issue 1) directly informs the determination that recovery action under Rule 14/Section 11A is not maintainable (Issue 2).