2016 (11) TMI 991 - AT - Central Excise

Demand - CENVAT credit of NCCD paid on Partially Oriented Polyester Yarn (POY) consumed captively for manufacture of DTY - benefit of N/N. 46/2000-CE dated 17/05/2003 - Rule 14 of the Cenvat Credit Rules read with Section 11A of the CEA 1944 - Held that - reliance placed on the decision of the case of COMMISSIONER OF CENTRAL EXCISE MUMBAI Versus INDORAMA SYNTHETICS (I) LTD 2014 (10) TMI 675 - CESTAT MUMBAI where similar issue was decided and it was held that once the exemption is availed the question of taking any credit once again on the POY captively consumed and utilizing the same elsewhere would not arise. Though there is no one to one co-relation required between the input and output explanation to sub-rule (7) makes it abundantly clear that if there is a conflict between the provisions of this rule and provisions of notification the provisions of notification shall prevail - Simultaneous availment of duty exemption and benefit of cenvat credit militates against the very object of NCCD levy and would lead to huge leakages in revenue. Therefore the impugned order is not sustainable in law. Accordingly we set aside the same and hold that the appellant is liable to reverse the credit taken along with interest thereon as correctly held in the adjudicating authority s order. However since the issue relates to interpretation of law imposition of penalty is not warranted. Appeal allowed - decided in favor of Revenue.

Issues:
1. Interpretation of Notification No. 46/2000-CE regarding exemption from NCCD for DTY.
2. Entitlement to avail credit of NCCD paid on captively consumed POY for manufacturing DTY.
3. Application of Cenvat Credit Rules and relevant case laws to determine eligibility for credit utilization.
4. Conflict between provisions of Cenvat Credit Rules and exemption notifications.
5. Legal implications of simultaneous availment of duty exemption and Cenvat credit.
6. Justifiability of imposition of penalty in cases of interpretation of law.

Analysis:

1. The primary issue in this case revolves around the interpretation of Notification No. 46/2000-CE, which exempts DTY from NCCD. The dispute arises from the appellant's utilization of captively consumed POY for manufacturing DTY and claiming credit of NCCD paid on POY. The Revenue contended that since DTY is exempted from NCCD, the appellant was not entitled to avail credit on POY. The Additional Commissioner upheld the demand notice, but the Commissioner (Appeals) ruled in favor of the appellant, leading to the Revenue's appeal before the Tribunal.

2. The Tribunal referred to a previous decision in the respondent's case, emphasizing that once an exemption is availed under a notification, the question of taking credit on the input consumed captively and using it elsewhere does not arise. The Tribunal clarified that the provisions of the notification prevail over the Cenvat Credit Rules, highlighting the importance of avoiding double benefits and preventing revenue leakages. The Tribunal differentiated this case from previous decisions where credit was allowed under different circumstances, ultimately setting aside the lower appellate authority's decision and holding the appellant liable to reverse the credit taken.

3. The Tribunal's analysis included references to various case laws such as Silvasssa Industries, SRF, Modern Petrofils, and Mahindra & Mahindra Ltd. to establish the inapplicability of those precedents to the current case under the Cenvat Credit Rules of 2002 & 2004. The Tribunal emphasized that the simultaneous availment of duty exemption and Cenvat credit would defeat the purpose of the NCCD levy, leading to revenue losses. Consequently, the Tribunal set aside the penalty imposed due to the issue's nature being related to the interpretation of law rather than willful misconduct.

4. Ultimately, the Tribunal allowed the Revenue's appeal, citing the clear coverage of the issue by a previous decision of a co-ordinate bench. The judgment highlighted the importance of upholding the integrity of tax laws, preventing double benefits, and ensuring compliance with exemption notifications to maintain the revenue's stability and fairness in taxation.

Conclusion:
The judgment underscores the significance of adhering to exemption notifications, avoiding double benefits, and interpreting tax laws in a manner that upholds the legislative intent to prevent revenue leakages. The case serves as a precedent for the correct application of exemption provisions and Cenvat credit rules to maintain the integrity of the taxation system.

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