2011 (11) TMI 565 - AT - Central Excise

Availment of Cenvat Credit Rules, 2004 - Rule 3(1)(vi) and (via) - calculation of Additional Customs Duty included duty of excise and Educational Cess - Held that - there is no error in the calculation of duty of excise amounts as reflected in the suppliers invoices and as admitted in the course of hearing by both sides. There are cases, where the suppliers have not availed of the exemption under Notification No. 23/2003 (S.No. 2) and as such, in respect of such cases, the question of applying the restriction under Rule 3(7) of the Cenvat Credit Rules, 2004 does not arise as the application of the said Rule is conditional upon availing such exemption. Hence in respect of supplies for which no exemption has been availed, the appellants are correct in taking credit of the entire amount of duty equivalent to the excise duty and cess. As regards the appeals filed by the department, the manner of calculation has been examined in the course of hearing and both sides agree that while applying the formula specified in sub-rule 7(3) of the Cenvat Credit Rules, 2004, the Basic Customs Duty and the Additional Duty of Customs should be taken as the amount leviable as has been taken by the suppliers for the purpose of calculating the duty amounts. In other words, the Basic Customs Duty for the purpose of working out the formula should be taken as 5% which was the rate at which the Basic Customs Duty was leviable at the material time - appellant-assessees are allowed holding that they are entitled to credit of cess paid forming part of the Additional Customs Duty on the inputs; and all the six appeals filed by the department are rejected. It is also clarified that the appellant-assessees are also entitled, in addition, to credit of the final cess paid on the entire amount of excise duty in respect of the inputs supplied from the EOUs - Decided against Revenue.

Summary

Issues involved:
Calculation of excise duty on inputs purchased from Export Oriented Units (EOUs), availability of credit for cess amount, interpretation of Cenvat Credit Rules, 2004, application of exemption Notification No. 23/2003, dispute over additional duty inclusive of cess, restriction under Rule 3(7) of Cenvat Credit Rules, 2004.

Analysis:

Issue 1: Calculation of excise duty on inputs purchased from EOUs

The appellants purchased inputs from EOUs for manufacturing dutiable goods. The excise duty paid by the supplier EOUs was calculated based on Basic Customs Duty and Additional Customs Duty, which included duty of excise and Educational Cess. The lower appellate authority denied credit of the cess amount, citing an amendment in 2009. However, the appellants argued that credit of cess is allowable under Rule 3(1)(vi) and (via) of the Cenvat Credit Rules, 2004. They contended that the restriction under Rule 3(7) only prohibits taking credit equal to Basic Customs Duty, and since importers get credit for the entire Additional Customs Duty, credit for excise cess should also be allowed.

Issue 2: Interpretation of Cenvat Credit Rules, 2004

The Tribunal examined the interpretation of the Cenvat Credit Rules, 2004, specifically Rule 3(7). It was noted that where suppliers did not avail of the exemption under Notification No. 23/2003, the restriction under Rule 3(7) did not apply. Thus, the appellants were justified in claiming credit for the entire duty amount inclusive of excise duty and cess in such cases. However, in cases where suppliers availed of the exemption, the restriction under the proviso to Rule 3(7) applied, preventing credit equal to Basic Customs Duty.

Issue 3: Application of exemption Notification No. 23/2003

For supplies where the duty was paid by suppliers availing exemption under Notification No. 23/2003, the restriction under Rule 3(7) came into play. The Tribunal clarified that the restriction aimed to prevent manufacturers from claiming credit equal to Basic Customs Duty, ensuring no undue advantage for EOU supplies. It was emphasized that credit for Additional Customs Duty inclusive of excise duty and cess was permissible under Rule 3(1) for both imported and indigenously produced goods.

Final Judgment:
The Tribunal allowed the appeals filed by the appellant-assessees, granting them credit for the cess paid as part of the Additional Customs Duty on inputs. The appeals filed by the department were rejected. Additionally, the appellant-assessees were entitled to credit for the final cess paid on the entire amount of excise duty for inputs from EOUs. The judgment clarified the calculations and interpretations under the Cenvat Credit Rules, 2004, ensuring the correct application of duties and credits in line with the legal provisions.