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2010 (3) TMI 792 - HC - Central ExciseCENVAT credit - 100% Export Oriented Unit (EOU) - Rule 3 of the Rules - Notification No. 2/95-C.E., dated 4-1-95 - Revenue want to restrict the availment of Modvat credit to the components of additional duty of customs paid under Section 3 of the Customs Tariff Act, by bringing the fiction that 100% E.O.U. is a place which is not in India and the sale therefrom within India is akin to import into India. We do not find any substance in this view of the Revenue - If the additional duty is less than the actual duty paid on the inputs cleared from 100% EOU, the manufacturer in India shall be eligible only for the credit equivalent to the additional customs duty - The excise duty is to be calculated at the rate of 50% of each of the duty of customs leviable on the like goods produced or manufactured outside India - Since the actual amount of additional duty paid by the respondent has not been brought on record the method adopted by Commissioner (Appeals) appears to be proper and reasonable - Appeal is dismissed
Issues Involved:
1. Determination of the quantum of CENVAT credit availed by the respondent. 2. Interpretation of Rule 3(6)(a) of the CENVAT Credit Rules, 2001. 3. Application of Notification No. 2/95-C.E. dated 4th January 1995. 4. Legal nature of the duty paid by a 100% Export Oriented Unit (EOU). Issue-wise Detailed Analysis: 1. Determination of the quantum of CENVAT credit availed by the respondent: The primary issue was whether the respondent was justified in availing CENVAT credit equivalent to the basic excise duty shown in the input invoices issued by a 100% EOU. The Central Excise Audit Party found that the respondent had availed CENVAT credit on inputs from M/s. Elque Polyester Ltd., a 100% EOU, which had paid 50% of the total duty payable under Notification No. 2/95-C.E. The revenue contended that the respondent was only eligible for CENVAT credit equal to the actual additional duty paid by the supplier, which was 50% of the basic excise duty. Therefore, the CENVAT credit of Rs. 1,46,511/- availed by the respondent was deemed inadmissible and recoverable. 2. Interpretation of Rule 3(6)(a) of the CENVAT Credit Rules, 2001: The revenue argued that under Rule 3(6)(a), the respondent was eligible to take CENVAT credit equal to the additional duty leviable on like goods under Section 3 of the Customs Tariff Act, 1975, paid on such inputs. The Commissioner (Appeals) and the Tribunal found that the duty paid by the 100% EOU was excise duty, not customs duty, even though it was calculated based on the customs duty leviable on like goods produced outside India. The Tribunal upheld the view that the respondent was entitled to CENVAT credit equal to the additional duty actually paid by the supplier or the additional duty leviable, whichever was lower. 3. Application of Notification No. 2/95-C.E. dated 4th January 1995: Notification No. 2/95-C.E. provided that goods manufactured and cleared by a 100% EOU to the Domestic Tariff Area (DTA) would be exempt from so much of the duty of excise as was in excess of 50% of each duty of customs leviable on like goods produced outside India. The Tribunal noted that this notification set a minimum limit for the duty payable by a 100% EOU, which was calculated based on customs duties but was actually excise duty. The Tribunal concluded that the duty paid by the 100% EOU was excise duty, not customs duty, and thus the respondent's CENVAT credit should be based on the actual additional duty paid by the supplier. 4. Legal nature of the duty paid by a 100% Export Oriented Unit (EOU): The Tribunal and the Commissioner (Appeals) emphasized that the duty paid by a 100% EOU is excise duty, not customs duty, despite being measured by the customs duty leviable on like goods produced outside India. The Tribunal relied on the Larger Bench decision in Vikram Ispat v. Commissioner, which clarified that the duty paid by a 100% EOU is excise duty and should not be dissected into different components of customs duty. The Tribunal held that the method of determining the quantum of CENVAT credit should be based on the actual additional duty paid by the 100% EOU or the additional duty leviable, whichever is lower. Conclusion: The High Court upheld the Tribunal's decision, agreeing that the respondent was entitled to CENVAT credit based on the actual additional duty paid by the 100% EOU. The court found no legal infirmity in the Tribunal's order and dismissed the appeal, concluding that no substantial question of law arose from the Tribunal's decision. The appeal was dismissed with no order as to costs.
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