2011 (9) TMI 648 - AT - Central Excise

Cenvat Credit on Inputs - Served from India Scheme (SFIS) - Appellant manufacturers of transformers - Clearances made under Notification No.34/2006-CE - Exempted clearances - Pay amount equal to 10% of the value of the goods under rule 6 - Held that - It is nobody s case that the functioning of SFIS certificate is different then the functioning of DEPB scheme. In DEPB scheme the exporters are issued DEPB which allow them specific amount to be utilized as customs duty, while the SFIS scheme, the service providers are issued SFIS certificate which allow them to import or procure indigenous goods without payment of duty by debiting the said script. - In view of Universal Power Transfomers Pvt.Ltd. Vs. CCE Bangalore and Tanfac Industries Ltd. v. CCE (2009 - TMI - 33667 - MADRAS HIGH COURT), debits made in SFIS would not amount to exemption from payment of duty.

Issues Involved:
1. Whether the clearances made under Notification No. 34/2006-CE, as amended, are considered exempted clearances.
2. Whether the appellants are required to pay an amount equal to 10% of the value of the goods cleared by availing the benefit of the said notification under Rule 6(3)(b) of CENVAT Credit Rules, 2004.
3. Whether debits made in the SFIS certificate amount to an exemption from payment of duty or a discharge of duty liability.

Issue-Wise Detailed Analysis:

1. Exempted Clearances under Notification No. 34/2006-CE:
The appellants cleared transformers by availing the benefit of exemption from payment of duty under Notification No. 34/2006-CE, as amended by Notification No. 41/2006-CE. The lower authorities contended that the appellants did not maintain proper and separate accounts for inputs used in exempted goods, invoking Rule 6(2) of CENVAT Credit Rules, 2004. Consequently, they demanded an amount equal to 10% of the value of the goods and imposed penalties and interest. The Tribunal referred to the case of Universal Power Transformers Pvt. Ltd. Vs. CCE Bangalore, where it was held that the conditions in the SFIS certificate are equivalent to the discharge of duty liability, not an exemption. The Tribunal found no difference in the facts of the current case and applied the same ratio, concluding that the clearances made under the said notification should not be considered exempted.

2. Requirement to Pay 10% of the Value of Goods:
The lower authorities demanded that the appellants pay an amount equal to 10% of the value of the goods cleared under the exemption, as per Rule 6(3)(b) of CENVAT Credit Rules, 2004. The Tribunal, however, found that the debits made in the SFIS certificate are equivalent to the discharge of duty liability, not an exemption. Therefore, the requirement to pay 10% of the value of the goods does not apply in this case. The Tribunal set aside the demand and penalties imposed by the lower authorities.

3. Debits in SFIS Certificate - Exemption or Duty Discharge:
The core issue was whether the debits made in the SFIS certificate amount to an exemption from duty or a discharge of duty liability. The Tribunal referred to the notification and CBEC Circular No. 837/14/2006-CX, which clarified that the duty liability debited in the SFIS scrip amounts to the discharge of duty liability. The Tribunal also cited the judgment of the Hon'ble High Court of Madras in the case of Tanfac Industries Ltd. v. CCE, where it was held that debits under DEPB schemes are equivalent to payment of duty in cash and not an exemption. Applying this ratio, the Tribunal concluded that the debits made in the SFIS certificate are not an exemption from payment of duty but a discharge of duty liability.

Conclusion:
The Tribunal found merit in the appeal, set aside the impugned order, and allowed the appeal with consequential relief. The debits made in the SFIS certificate were held to be equivalent to the discharge of duty liability, not an exemption, and the requirement to pay 10% of the value of the goods under Rule 6(3)(b) of CENVAT Credit Rules, 2004, was not applicable.

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