2013 (3) TMI 599 - CGOVT - Central Excise

Denial of rebate claim - Duty paid from lapsed CENVAT Credit - Exemption under Notification No. 30/2004-C.E. dated 9-7-2004 - Held that - The sub-rule (3)(i) & (ii) of Rule 11 of Cenvat Credit Rules 2004 clearly stipulates that if a manufacturer opts for exemption from whole of duty of excise leviable on the said final product under a Notification issued under Section 5A of the Act or the said final product has been exempted absolutely under Section 5A of the said Act he shall be required to pay an amount equivalent to the Cenvat credit taken by him in respect of inputs received for use in the manufacture of the said final product and is lying in stock or in process or is contained in the final product lying in the stock and after deducting the said amount from the balance of Cenvat credit if any lying in his credit the balance if any still remaining shall lapse and shall not be allowed to be utilized for payment of duty on any other final product whether cleared for home consumption or for export or for payment of Service Tax on any output service whether provided in India or exported. - Notification No. 30/2004-C.E. provides for exemption from whole of duty and therefore respondent s case is covered under sub-rule (3)(i) of Rule 11 and not under sub-rule (3)(ii). Commissioner (Appeals) has erred in not considering the word or after sub-rule (3)(i). - Decided in favour of assessee.

Summary

Issues Involved:
1. Utilization of inadmissible un-utilized Cenvat credit.
2. Interpretation of Rule 11(3) of Cenvat Credit Rules, 2004.
3. Eligibility for rebate claims under Rule 18 of Central Excise Rules, 2002.
4. Applicability of Notification No. 30/2004-C.E. and Notification No. 29/2004-C.E.
5. Validity of the orders-in-original and orders-in-appeal.

Detailed Analysis:

1. Utilization of Inadmissible Un-utilized Cenvat Credit:
The respondents exported Grey Knitted Fabrics and filed rebate claims for the duty paid. The department reviewed the sanction order and alleged that the respondents utilized inadmissible un-utilized Cenvat credit lying in balance as on 1-3-2007, which contravened Rule 11(3)(i) of Cenvat Credit Rules, 2004. Consequently, the lower authority demanded the erroneous refund, appropriate interest, and imposed a penalty under Section 11A, Section 11AB, and Section 11AC of the Central Excise Act, 1944, respectively.

2. Interpretation of Rule 11(3) of Cenvat Credit Rules, 2004:
The core issue revolved around the interpretation of Rule 11(3) of Cenvat Credit Rules, 2004, inserted via Notification No. 10/2007-C.E. (N.T.). The rule stipulates that a manufacturer opting for exemption from the whole duty of excise under Section 5A of the Act must pay an amount equivalent to the CENVAT credit taken on inputs lying in stock. The Commissioner (Appeals) interpreted the rule differently, suggesting that the exemption under Notification No. 30/2004-C.E. was not absolute, thus allowing the use of Cenvat credit. However, the department argued that the rule clearly mandates the lapse of un-utilized Cenvat credit when opting for such exemptions.

3. Eligibility for Rebate Claims under Rule 18 of Central Excise Rules, 2002:
The respondents filed rebate claims under Rule 18 of Central Excise Rules, 2002, for the duty paid on exported goods. The lower authority restricted the rebate claim to the amount paid in cash through the Personal Ledger Account and rejected the portion paid from the lapsed Cenvat credit. The Commissioner (Appeals) set aside this decision, allowing the rebate claims. However, the department contended that the rebate claims were erroneous as the duty was paid from lapsed Cenvat credit.

4. Applicability of Notification No. 30/2004-C.E. and Notification No. 29/2004-C.E.:
Notification No. 30/2004-C.E. provides full exemption from duty provided no Cenvat credit on inputs is availed, while Notification No. 29/2004-C.E. prescribes effective rates of duty. The respondents availed exemptions under both notifications simultaneously. The department argued that the exemption under Notification No. 30/2004-C.E. was absolute, thus triggering the provisions of Rule 11(3) of Cenvat Credit Rules, 2004, leading to the lapse of un-utilized Cenvat credit. The respondents, however, maintained that the exemption was conditional and did not cause the lapse of credit.

5. Validity of the Orders-in-Original and Orders-in-Appeal:
The original authority's orders demanded the erroneous refund, interest, and imposed penalties. The Commissioner (Appeals) set aside these orders, allowing the appeals. The department filed revision applications, arguing that the orders-in-original were legal and proper, as they correctly applied Rule 11(3) of Cenvat Credit Rules, 2004. The Government, upon review, found that the Commissioner (Appeals) erred in interpreting the rule and upheld the original authority's orders.

Conclusion:
The Government set aside the impugned Orders-in-Appeal, restored the Orders-in-Original, and concluded that the rebate claims were erroneous as the duty was paid from lapsed Cenvat credit. The revision applications succeeded, affirming the original authority's decisions.