2016 (12) TMI 79 - AT - Central Excise

MODVAT credit - SAD exemption vide notification No. 22/99-Cus dated 28-2-1999 - whether denial of modvat credit on the ground that appellant had filed declaration in connection with the availment of notification No. 22/99-Cus that this imported goods meant for re-sale, therefore they were not suppose to take credit in respect of these imported goods, justified? - Held that - I find that entire foundation of the case for denial of modvat credit is that the appellant had filed declaration to the customs as per condition of exemption notification No. 22/99-Cus. As per the said declaration the goods are meant for resale therefore on such goods modvat credit is not available. I find that the declaration was filed in order to avail the exemption from SAD whereas appellant availed modvat credit in respect of CVD which was admittedly paid. The modvat credit rules prevailing at the material time does not bar from the taking credit of CVD if the importer availed exemption notification No. 22/99-Cus or filed any declaration to that effect. I therefore find no reason why the modvat credit on the CVD paid by the appellant should not be allowed. The fact is not under dispute that goods imported by paying CVD has either been used in the manufacture of final product which was cleared on payment of duty and/ or cleared as such on payment of duty in terms of Rule 57 F(3) of Central Excise Rules, 1944. Therefore impugned order is not sustainable - credit allowed - decided in favor of appellant-assessee.

Summary

Issues:
- Denial of Modvat credit based on declaration filed for availing exemption
- Claim of double benefit by the appellant

Analysis:

Issue 1: Denial of Modvat credit based on declaration filed for availing exemption
The case involved the appellant importing materials for production and trading, declaring them for resale to avail exemption from Special Additional Duty (SAD) under notification No. 22/99-Cus. The appellant paid Countervailing Duty (CVD) upon clearance and took Cenvat credit for the same. The dispute arose when the Department issued a show cause notice proposing denial of Modvat credit, arguing that the appellant's declaration for exemption under notification No. 22/99-Cus barred them from claiming Modvat credit on CVD paid. The Adjudicating authority and Commissioner(Appeals) upheld the demand, leading the appellant to appeal.

Analysis of Issue 1:
The appellant's counsel argued that the sole reason for denying Modvat credit was the declaration filed for availing the exemption under notification No. 22/99-Cus. The counsel contended that since the Modvat credit pertained to CVD, a different aspect from the declaration, the appellant should be allowed to claim the credit. It was undisputed that the imported goods were received, used in production, and duty was paid under Rule 57F(3) of Central Excise Rules, 1944. Therefore, the counsel asserted that Modvat credit for CVD paid should be legally permissible for the appellant.

Issue 2: Claim of double benefit by the appellant
The Revenue argued that the appellant obtained double benefits by claiming exemption under notification No. 22/99-Cus from SAD payment while also availing Modvat credit for CVD paid.

Analysis of Issue 2:
The Revenue contended that the appellant took advantage of both exemption from SAD and claimed Modvat credit for CVD, implying a double benefit. However, the Tribunal examined the case and found that the appellant's filing of a declaration for exemption did not preclude them from claiming Modvat credit on CVD paid. The Tribunal emphasized that the declaration was specific to SAD exemption and did not restrict the appellant from availing Modvat credit for CVD. As the appellant had used the imported goods in production and cleared them by paying duty, the Tribunal concluded that the denial of Modvat credit based on the declaration was unfounded.

In the final judgment, the Tribunal set aside the impugned order, allowing the appeals in favor of the appellant. The Tribunal determined that the appellant was entitled to claim Modvat credit on the CVD paid, as the declaration filed for SAD exemption did not prohibit such credit. The decision highlighted the distinction between the purpose of the declaration and the eligibility for Modvat credit, ultimately ruling in favor of the appellant.