2017 (12) TMI 1272 - HC - Central Excise

100% EOU - CENVAT credit - goods purchased from sister unit - whether the supplier being a sister concern had taken undue advantage of the benefit by charging duty which was paid by the respondent-assessee? - Held that - this is not a case of an arm s length transaction as the supplier and the respondent-assessee were related to each other, but counsel for the Revenue has stated that they have not examined the said aspect whatsoever and it is not the pleaded case of the Revenue. The show cause notice and the order in original do not record that the supplier has taken undue benefit by asking the respondent-assessee to pay the duty. Even otherwise, the impugned order permits the Revenue to proceed in case of any wrongdoing in the case of the supplier. The impugned order does not require any interference. Duty has been paid by the respondent-assessee to the supplier, hence they are entitled to benefit and refund on export - appeal dismissed - decided against appellant-Revenue.

Summary

Issues:
1. Alleged wrongful claim of CENVAT credit by the respondent-assessee.
2. Disallowance of CENVAT credit, imposition of penalty, and recovery of amount by the Additional Commissioner.
3. Appeals filed by the respondent-assessee and subsequent orders by the Commissioner Appeals and the Tribunal.
4. Interpretation of rules and notifications regarding CENVAT credit entitlement for 100% Export Oriented Units.
5. Examination of the relationship between the respondent-assessee and the supplier in the context of duty payment.

Issue 1: Alleged wrongful claim of CENVAT credit
The respondent-assessee, a 100% Export Oriented Unit, was accused of wrongly claiming CENVAT credit for goods purchased from their sister unit. Show cause notices were issued, alleging the wrongful claim of credits totaling a significant amount. The Additional Commissioner disallowed the claimed credit, citing Rule 14 of the CENVAT Credit Rules, 2004, and imposed penalties under Rule 15.

Issue 2: Disallowance of CENVAT credit and recovery
The Additional Commissioner's order disallowing the CENVAT credit was challenged by the respondent-assessee through appeals. The Commissioner Appeals allowed the appeals, leading to further appeal by the Revenue before the Tribunal. The Tribunal dismissed the appeal, affirming the findings of the Commissioner Appeals that the duty was actually paid by the respondent-assessee to the supplier, justifying the credit claim.

Issue 3: Interpretation of rules and notifications
The Tribunal's decision was based on the fact that the duty was paid by the respondent-assessee to the supplier, making them eligible for the credit and refund on export. The Revenue's argument regarding the entitlement to CENVAT credit under Section 5A of the Central Excise Act was examined, emphasizing the conditions specified in the exemption notifications and the necessity of fulfilling those conditions for claiming the credit.

Issue 4: Relationship between the respondent-assessee and the supplier
The relationship between the respondent-assessee and the supplier, being sister units, raised concerns about undue advantage or improper transactions. However, it was clarified that the Revenue had not pursued this angle, and the order allowed for further action if any wrongdoing was found on the supplier's part. The conditions for transferring goods between EOU units were highlighted, indicating that the exemption was not absolute and required adherence to specific procedures.

Conclusion:
The High Court upheld the Tribunal's decision, dismissing the Revenue's appeal. It was established that the duty was paid by the respondent-assessee, justifying their claim for credit and refund. The judgment emphasized the importance of complying with the specified conditions for claiming CENVAT credit, especially in transactions involving related entities. The decision highlighted the need for thorough examination of transactions and adherence to regulatory requirements to avoid disputes over credit entitlement.