2014 (9) TMI 365 - HC - Central Excise

Availment of Cenvat credit - Double credit - Whether the Tribunal below committed substantial error of law in allowing Cenvat Credit of actual duty paid on the grey fabrics in terms of Rule 3 of the Cenvat Credit Rules, 2001 and simultaneously permitting the assessee to avail of deemed Modvat Credit on the same fabrics under the provisions of Notification No. 7/2001-C.E. (N.T.), dated March 1, 2001 and 53/2001-C.E. (N.T.), dated June 29, 2001, even though it is restricted in terms of paragraph 4 of these Notifications - Held that - The assessee appears to be seeking to take Cenvat Credit under Rule 3 of the Cenvat Credit Rules, 2001 as well as under Rule 11 of said rules on the basis of paragraph 4 above. An attentive reading of explanation to paragraph 4 above makes it clear that the only exception to paragraph 4 is in the case of taking of actual credit under Rule 3 on capital goods. In other words, assessee may take deemed credit as well as actual credit on the capital goods only. When it comes to the inputs, it is only one time credit which is permissible. The assessee may take the benefit of deemed credit, in which case the actual credit benefit would not be available on inputs. Both the facilities cannot be availed together. In the instant case, the assessee had already availed deemed credit, therefore subsequently it was not justified in taking actual credit. It is evident that the assessee took double benefit of Cenvat credit, which was not permissible. The double benefit was obtained in respect of same goods namely unprocessed fabrics. It was taken at two stages. Once the deemed basis was adopted for claiming credit, and in the next stage the actual credit was taken and enjoyed. The Tribunal misdirected itself in reading and construing two Notifications and more particularly paragraphs 4 thereof. The Tribunal committed error in overlooking that the assessee had taken Cenvat Credit of actual duty paid on the grey fabrics in terms of Rule 3 of Cenvat Credit Rules, 2001. In that view on the same fabrics, deemed credit could not have been availed under the provisions of Notification No. 7/2001, dated 1-3-2001 and Notification No. 53/2001, dated 29-6-2001 and that such double benefit was restricted in terms of paragraph 4 of those notifications. Tribunal committed substantial error of law in holding that double credit on the same inputs can be availed of. - Decided in favour of Revenue.

Summary

Issues:
1. Whether the Tribunal erred in allowing Cenvat Credit and Modvat Credit simultaneously?
2. Whether the Tribunal erred in permitting double credit on the same inputs?

Analysis:

Issue 1: Cenvat Credit and Modvat Credit
The appellant, a Central Excise Department, challenged an order passed by the Tribunal allowing the respondent-assessee to avail Cenvat Credit and deemed Modvat Credit on grey fabrics. The assessee had availed Cenvat Credit of actual duty paid on grey fabrics and also deemed Modvat Credit under specific Notifications. The Tribunal held that the assessee could not avail deemed credit on the same inputs. The Commissioner (Appeals) upheld this decision partially. The High Court analyzed the notifications and ruled that the assessee had taken double benefit by availing both actual and deemed credits on the same fabrics. The Court emphasized that the provisions did not permit simultaneous availment of both credits. The appeal was allowed, finding the Tribunal's decision erroneous.

Issue 2: Double Credit on the Same Inputs
The Department contended that the assessee unlawfully obtained double Cenvat credit on the same fabrics. The appellant argued that the Tribunal misinterpreted the Notifications, specifically paragraph 4, which prohibits taking credit on declared inputs used in final products. The Court noted that the assessee had taken Cenvat Credit twice on grey fabrics, first under the deeming provision and later on actual basis. The Court found the assessee's actions deliberate, aiming to circumvent the prohibition in the Notifications. It highlighted that only one-time credit was permissible for inputs, either deemed or actual, but not both. The Court concluded that the Tribunal erred in allowing double credit and ruled in favor of the Department, emphasizing that such practice was not permissible under the law.

In conclusion, the High Court held that the Tribunal's decision allowing double credit on the same inputs was incorrect. The Court emphasized that the assessee had obtained double benefit by availing both deemed and actual credits on the grey fabrics, which was not permissible under the relevant Notifications. The appeal was allowed, affirming that such double credit was restricted by the Notifications, and the Tribunal's decision was erroneous.