2020 (2) TMI 1574 - HC - Central Excise

Area Based Exemption - exemption under Notification No. 30/2004-C.E. - absolute or conditional in nature - lapse of credit lying unutilised - unutilized Cenvat credit lying in balance related to capital goods and input service, can be demanded or not - HELD THAT - Once the Tribunal has come to the conclusion that refund which was granted to the respondent-assessee has become final in view of Rule 6(6) of the Rules, 2004, lapsing of Cenvat credit provided under Rule 11(3) related to goods already exported would not be applicable. Therefore, invocation of Rule 11(3) of the Rules, 2004 is rightly held to be not applicable in the facts of the case. The questions of law proposed by Revenue cannot be termed as substantial questions of law - Appeal dismissed.

Summary

Issues Involved:
1. Justification of CESTAT's decision on exemption under Notification No. 30/2004-C.E. and its conditional nature.
2. Applicability of Rule 11(3) of the Cenvat Credit Rules, 2004 to goods already exported.
3. Lapsing of Cenvat credit related to capital goods and input services under Rule 11(3) of Cenvat Credit Rules, 2004.

Issue-wise Detailed Analysis:

1. Justification of CESTAT's decision on exemption under Notification No. 30/2004-C.E. and its conditional nature:
The appellant questioned whether the CESTAT was justified in holding that the exemption under Notification No. 30/2004-C.E. is not absolute but conditional, and therefore, Rule 11(3) of the Cenvat Credit Rules, 2004, which provides for lapsing of unutilized credit, shall not apply. The Tribunal found that the exemption under Notification No. 30/2004-C.E. is conditional, and thus, the lapsing provision under Rule 11(3) does not apply. The Tribunal emphasized that the credit related to inputs used in exported goods should not lapse, as it is protected under Rule 6(6) of the Cenvat Credit Rules, 2004.

2. Applicability of Rule 11(3) of the Cenvat Credit Rules, 2004 to goods already exported:
The Tribunal concluded that Rule 11(3) of the Cenvat Credit Rules, 2004, which mandates reversal of credit for inputs used in the manufacture of exempted goods, does not apply to goods already exported. The Tribunal noted that the respondent-assessee had already been granted a refund for the Cenvat credit related to exported goods, which had attained finality. Therefore, demanding reversal of this credit would amount to reviewing the refund sanction order, which is not permissible. The Tribunal also referred to Rule 6(6) of the Cenvat Credit Rules, 2004, which allows Cenvat credit for inputs used in exported goods, irrespective of the final product's exemption status.

3. Lapsing of Cenvat credit related to capital goods and input services under Rule 11(3) of Cenvat Credit Rules, 2004:
The Tribunal held that Rule 11(3) does not mandate the lapsing of Cenvat credit related to capital goods and input services. The provision for lapsing in Rule 11(3) only applies to inputs, not to capital goods and input services. The Tribunal applied the principle of ejusdem generis, concluding that the unutilized Cenvat credit related to capital goods and input services cannot be demanded for reversal. The Tribunal further stated that the lapsing provision would not apply to credit related to goods already exported, as this would render Rule 6(6) redundant.

Conclusion:
The High Court agreed with the Tribunal's findings and reasoning. The court held that the questions of law proposed by the Revenue do not constitute substantial questions of law. Consequently, the appeal was dismissed. The court upheld the Tribunal's decision that Rule 11(3) of the Cenvat Credit Rules, 2004, does not apply to the credit related to exported goods and that the lapsing provision does not affect credit related to capital goods and input services.