2018 (7) TMI 1366 - AT - Central Excise

100% EOU - Refund of unutilized CENVAT Credit - rejection of refund on the ground that certain inputs were procured by the appellant on payment of duty, when the same goods were covered under N/N. 22/2003 dated 31.03.2003 and have been procured without payment of any duty - Whether the appellant is entitled to CENVAT credit of duty paid on inputs procured by them for use in the manufacture of final product in the EOU? Held that - Section 5A(1A) is applicable to those cases where the exemption is granted absolutely - Circular dated 26.11.2010 has referred to the Notification No. 29/2004 dated 09.07.2004 which has granted exemption to various textile articles. It has been explained that the manufacturer cannot opt to pay duty under the above notification and he cannot avail cenvat credit of duty paid on inputs. The appellant, being EOU was entitled to procure inputs without payment of duty under N/N. 22/2003. A reference to this notification indicates that the exemption is granted subject to various conditions including the condition that the procedure contained in Central Excise (Removal of Goods at Concessional Rate of Duty for manufacture of Excisable Goods) Rules, 2001. The above clearly reveals that the exemption is conditional and is not absolute - provision of Section 5A(1A) as well as the Circular dated 26.11.2010 are not applicable for procurement of goods under N/N. 22/2003. The appellant will be entitled to consequential refund under Rule 5 of CCR subject to satisfying the conditions prescribed therein - appeal allowed - decided in favor of appellant.

Summary

Issues:
Challenge to Orders-in-Appeal denying refund claims under Rule 5 of Cenvat Credit Rules, 2004 based on duty payment for inputs procured under Notification No. 22/2003 dated 31.03.2003.

Analysis:
The appellant, a 100% EOU, contested Orders-in-Appeal rejecting part of their refund claims under Rule 5 of the Cenvat Credit Rules, 2004, related to inputs procured on payment of duty. The dispute centered around the Department's stance that duty paid on goods covered by Notification No. 22/2003, procured without duty payment, is not eligible for cenvat credit. The appellant argued that the exemption under the notification is conditional and subject to fulfillment of specific conditions, contending that Section 5A(1) cannot be enforced against them. Reference was made to a Karnataka High Court decision to support this argument.

The Revenue defended the impugned orders, emphasizing that the Commissioner (Appeals) did not delve into the merits of the case and upheld the rejection based on the duty payment requirement under Notification No. 22/2003. They disputed the applicability of the Karnataka High Court decision to the present case and maintained that the impugned order was justified.

Upon review, the Tribunal examined whether the appellant could claim cenvat credit for duty paid on inputs despite the availability of duty exemption under Notification No. 22/2003. Both lower authorities found the cenvat credits irregular, leading to the rejection of refund claims under Rule 5 of the Cenvat Credit Rules.

The Tribunal analyzed Section 5A(1A) of the Central Excise Act, which applies to cases of absolute duty exemption. A Circular clarified that exemptions granted unconditionally trigger Section 5A(1A). However, Notification No. 22/2003, under which the appellant procured inputs, imposed conditional exemptions, not absolute ones. Consequently, the Tribunal concluded that Section 5A(1A) and the Circular were inapplicable to the appellant's situation, allowing for the cenvat credit on duty paid inputs and subsequent refund eligibility under Rule 5.

The Tribunal also addressed the Revenue's argument regarding the appeal's merits, noting that the lower authority did consider the merits by referencing Section 5A and the Circular. This justified the appellant's right to challenge the merits before the Tribunal.

Ultimately, the Tribunal set aside the impugned orders, allowing the appeals and granting the appellant consequential refund under Rule 5 of the Cenvat Credit Rules, 2004, provided the specified conditions are met.