2013 (5) TMI 735 - HC - Central Excise

SSI Exemption and export - payment of duty on export and claiming rebate / refund - utilization of credit of duty paid on capital goods - interpretation of exemption notification and Rule 5 of CCR - held that - a manufacturer seeking benefit of such exemption notification was not entitled to avail credit of duty on inputs used in the manufacture of goods of which such exemption was being availed and cleared for home consumption and of which the exemption was availed. Restriction on utilization of credit of duty on capital goods - held that - The limitation on utilization of the cenvat credit on capital goods for payment of duty is on the aforesaid clearances . The reference to on the aforesaid clearances must be seen as a reference to the goods cleared for home consumption referred to in clause (iii), just preceding clause (iv) of which the limitation of non-utilization of cenvat credit on inputs used in manufacture of such specified goods is imposed. To put it differently, clause (iv) of para 2 thereof puts a restriction on the manufacturer utilizing credit of duty paid on capital goods on the clearances made for home consumption and not for the exports. The adjudicating authority as well as the Government, in our opinion, committed an error in interpreting such provision. The adjudicating authority, therefore, erred in holding that the petitioner erroneously paid duty on clearances for export which duty was otherwise exempt under the notification. In fact, the notification itself is clear in this respect and grants exemption from payment of clearances made for home consumption. - Revenue directed to grant rebate / refund - decided in favor of assessee.

Summary

Issues Involved:
1. Interpretation of Notification No. 8/2001 regarding exemption for Small Scale Industrial Units from payment of excise duty.
2. Eligibility for rebate claim on excise duty paid on exported goods.
3. Utilization of CENVAT credit on capital goods for payment of duty on export clearances.

Issue-wise Detailed Analysis:

1. Interpretation of Notification No. 8/2001:
The central issue in the case was the interpretation of Notification No. 8/2001, particularly clause (iv) of para 2. The petitioner, a manufacturer of woolen felt, claimed that the notification, which grants exemption to Small Scale Industrial Units from payment of excise duty on clearances for home consumption up to Rs. 100 lakhs, did not apply to export clearances. The adjudicating authority, appellate authority, and revisional authority had differing views on this interpretation. The court noted that the notification explicitly referred to exemptions for clearances for home consumption and not for exports. The court concluded that the adjudicating authority and the Government erred in interpreting the provision, emphasizing that the limitation on utilizing CENVAT credit on capital goods applied only to clearances for home consumption.

2. Eligibility for Rebate Claim:
The petitioner exported goods valued at Rs. 15,27,800/- and paid excise duty of Rs. 2,44,447/- by availing CENVAT credit on capital goods. The petitioner filed a rebate claim for the duty paid. The adjudicating authority issued a show cause notice stating that since the petitioner had not exceeded the Rs. 1 crore limit during the year, it was not required to pay any duty on export clearances and thus was not entitled to any rebate. The appellate authority initially accepted the petitioner's interpretation that Notification No. 8/2001 did not apply to exports but rejected the rebate claim based on Rule 5 of the CENVAT Credit Rules, 2001, which pertained to refund of CENVAT credit on inputs, not capital goods. The revisional authority upheld the adjudicating authority's interpretation, leading to the rejection of the rebate claim.

3. Utilization of CENVAT Credit on Capital Goods:
The petitioner argued that Notification No. 8/2001 did not prohibit utilizing CENVAT credit on capital goods for payment of duty on export products. The adjudicating authority, however, held that clause (iv) of para 2 of the notification restricted the utilization of CENVAT credit on capital goods for clearances up to Rs. 100 lakhs, regardless of whether the clearances were for home consumption or export. The court found that the words "on the aforesaid clearances" in clause (iv) referred to clearances for home consumption, not exports. The court noted that the term "if any" created some ambiguity but concluded that the restriction on utilizing CENVAT credit on capital goods applied only to clearances for home consumption, not exports.

Conclusion:
The court accepted the petitioner's interpretation that Notification No. 8/2001 did not apply to export clearances. The adjudicating authority and the Government erred in holding that the petitioner erroneously paid duty on export clearances, which were otherwise exempt under the notification. The court quashed all impugned orders and directed the respondents to grant a rebate of Rs. 2,44,447/- with statutory interest to the petitioner within three months. The petition was disposed of accordingly, with no order as to costs.