2017 (7) TMI 836 - AT - Central Excise

CENVAT credit - sugar cess - it was noticed by the Department that the assessee had availed credit of sugar cess as input credit in respect of sugar purchased from other sugar factories for reprocessing. As per Rule 3 of the Cenvat Credit Rules, 2004 the assessee is not entitled for the cenvat credit of cess on sugar as the cess on sugar is not specified in sub clause (i) to (xi) of Rule 3(1) of the CCR 2004 - Held that - the issue involved in the present case is no longer res integra and has been settled by the Hon ble Karnataka High Court in the case of Shree Renuka Sugars Ltd. 2014 (1) TMI 1469 - KARNATAKA HIGH COURT , where it was held that Rule 3 of the Cenvat Credit Rules provides that a manufacturer or producer of a final product shall be allowed to take credit of the duty of excise. Therefore, once a duty of excise is paid, the manufacturer or producer of the final product is entitled to take CENVAT credit - appeal dismissed - decided against Revenue.

Summary

Issues:
- Entitlement to cenvat credit on sugar cess
- Interpretation of Rule 3 of the Cenvat Credit Rules, 2004
- Applicability of Karnataka High Court decision
- Effect of pending appeal before the Supreme Court

Entitlement to Cenvat Credit on Sugar Cess:
The appeal involved a dispute regarding the entitlement of the appellant to cenvat credit on sugar cess. The Department contended that the appellant had availed irregular cenvat credit on sugar cess, which was not specified under Rule 3 of the Cenvat Credit Rules, 2004. The Department issued a show-cause notice for recovery of the credit along with interest and penalty. The Commissioner (Appeals) allowed the appeal of the assessee, leading to the Department filing the present appeal.

Interpretation of Rule 3 of the Cenvat Credit Rules, 2004:
The crux of the matter revolved around the interpretation of Rule 3 of the Cenvat Credit Rules, 2004. The Department argued that the appellant was not entitled to cenvat credit on sugar cess as it was not specified in the relevant clauses of Rule 3(1). Conversely, the appellant relied on the decision of the Hon'ble High Court of Karnataka in a similar case to support their claim for cenvat credit on imported sugar cess.

Applicability of Karnataka High Court Decision:
Both parties presented arguments based on the applicability of the Karnataka High Court decision in the case of Shree Renuka Sugars Ltd. The appellant contested the sustainability of the impugned order, emphasizing the pendency of an appeal by the Department in the Supreme Court against the Karnataka High Court decision. In contrast, the respondent highlighted that the issue had been settled by the Karnataka High Court, and the impugned order correctly relied on this precedent to allow the appeal of the assessee.

Effect of Pending Appeal Before the Supreme Court:
The Tribunal considered the effect of the pending appeal before the Supreme Court on the present case. Despite the Department's appeal in the Supreme Court, the Tribunal found no infirmity in the impugned order based on the precedent set by the Karnataka High Court decision. The Tribunal dismissed the Revenue's appeal, granting them the liberty to proceed as per law after the Supreme Court's decision on the pending Special Leave Petition (SLP).

In conclusion, the Tribunal upheld the Commissioner (Appeals)'s decision, emphasizing the binding nature of the Karnataka High Court judgment and the entitlement of the appellant to cenvat credit on sugar cess based on the established legal principles.