2013 (7) TMI 563 - AT - Central Excise

Cenvat Credit - removal of inputs from DTA to SEZ without reversing credit - Rule 3(5) of Cenvat Credit Rules, 2004 - Respondents are manufacturers of excisable goods namely, brake linings, clutch facings and disc braking pads. They take benefit of Cenvat credit on inputs used in the manufacture of these excisable products Respondents removed certain inputs on which Cenvat credit was taken to another unit of theirs situated in Mahindra Special Economic Zone without reversing the credit taken at the time of receipt of the inputs in the factory Held that - For the purpose of accounting the goods on which Cenvat credit is taken, CCR has to be considered as a complete code in itself and since the said rules do not envisage export of inputs after taking credit, Rule 3 (5) has to be necessarily complied with. Such an approach only is consistent with the decision of the Larger Bench of Tribunal in Lakhmi Automatic Loom Works (Ltd) 2008 (10) TMI 57 - CESTAT CHENNAI .In the said decision it was held that inputs cannot be removed from one EOU to another without payment of duty considering it as deemed export Moreover, Rule 18 and 19 would apply only when goods manufactured in a factory are exported and not when inputs on which credit is taken are exported Decided in favor of Revenue. Penalty Held that - No intention on the part of the respondent to evade payment of duty is established No penalty levied Decided against the Revenue.

Issues Involved:
1. Contravention of Rule 3(5) of Cenvat Credit Rules, 2004.
2. Interpretation of the term "export" under the SEZ Act and Central Excise Act.
3. Applicability of benefits under Rule 5 and Rule 6(6) of CCR.
4. Compliance with Rule 18 and Rule 19 of Central Excise Rules, 2002.
5. Imposition of penalty under Rule 15(1) of CCR.

Detailed Analysis:

1. Contravention of Rule 3(5) of Cenvat Credit Rules, 2004:
The respondents, manufacturers of excisable goods, removed inputs on which Cenvat credit was taken to another unit in Mahindra Special Economic Zone without reversing the credit. Revenue contended that this action contravened Rule 3(5) of CCR, 2004, requiring the reversal of credit taken. The adjudicating authority confirmed a demand of Rs. 6,22,500/- along with interest and imposed a penalty under Rule 15(1) of CCR.

2. Interpretation of the term "export" under the SEZ Act and Central Excise Act:
The Commissioner (Appeal) set aside the impugned order, relying on Circular No. 6/2010-Cus dated 19-03-2010, which treated supplies to SEZ units as exports. Revenue argued that the term "export" is not defined in the Central Excise Act or Rules but is defined in the Customs Act, 1962. The SEZ Act, 2005, includes a deeming fiction treating supplies to SEZ units as exports, but this fiction applies only within the context of the SEZ Act. The Gujarat High Court in Essar Steel Limited Vs. UOI ruled that the deeming fiction in the SEZ Act does not apply to the Customs Act, thus export duty is not payable unless there is an export out of India.

3. Applicability of benefits under Rule 5 and Rule 6(6) of CCR:
Revenue contended that CCR does not recognize deemed exports and benefits under Rule 5 and Rule 6(6) cannot be extended to the export of inputs on which credit is taken. The Tribunal in Lakshmi Autoloom Works Ltd Vs. CCE Trichy and CCE Vs. Tiger Steel Engineering (I) Pvt. Ltd held that benefits under CCR cannot be extended to deemed exports to SEZ.

4. Compliance with Rule 18 and Rule 19 of Central Excise Rules, 2002:
The respondent argued that goods manufactured in SEZ units are exported and thus could be removed without payment of duty under Rule 19(2) of Central Excise Rules, 2002. However, the Tribunal noted that Rule 19(2) requires approval from the Commissioner, which was not obtained in this case. The respondent did not follow the procedures notified under Rule 18 and Rule 19 for exporting goods under claim for rebate or bond.

5. Imposition of penalty under Rule 15(1) of CCR:
The Tribunal agreed with Revenue's appeal, reversing the Commissioner (Appeal)'s order and confirming the demand for Rs. 6,22,500/- along with interest. However, it found no intention on the part of the respondent to evade payment of duty, thus did not restore the penalty adjudged by the adjudicating authority.

Conclusion:
The appeal filed by Revenue was partially allowed, confirming the demand for Rs. 6,22,500/- along with interest but setting aside the penalty. The cross-objection by the respondent was disposed of.

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