2018 (7) TMI 1526 - HC - Central Excise

Clandestine removal - CENVAT Credit - countervailing duty paid inputs - Whether the appellant/assessee was entitled to CENVAT credit in respect of the countervailing duty paid inputs? Held that - The question of granting of benefit of input credit or input tax adjustment towards final tax liability of an assessee has engaged the attention of the Court on many occasions. The context of these disputes have been many fold; in one class of cases, the benefit was claimed for a pre-excise registration period; in the other class of cases, it was when the benefit of exemption notification could not be given to the manufacturer; in yet another category, the issue involved like in the present case, was clandestine removal. In the present case, this Court notices that the Commissioner in fact found that there is a complete identity with respect to Icon Industries (assessee on the one hand and M/s Marvellous Impex, the importer which had procured the PVC resin). The only finding was that M/s Marvellous Impex had imported the goods for use of M/s Hemant Trading (another firm created by the assessee proprietor). That firm did not carry on any activity and appear to be fictitious one. Nevertheless the product in question, PVC resin, was used to manufacture PVC battery separator by the assessee - There is no dispute that the inputs used i.e. PVR resin was by the assessee M/s Icon Industries; in fact, the basic duty liability and penalty have been imposed on the basis of these findings. However, it is equally a matter of record that certain quantity of PVR resin too was used as a raw material. There may be no doubt that with respect to other inputs the assessee did not posses any document. However, that ought not have blinded the authority taking note of material which did exist on record (in the form of the payments made towards CVD) which can be legitimately claimed as input credit by the assessee. The respondent-Central Excise Authorities are directed to proceed to grant such Cenvat credit as is permissible to the appellant/assessee, having regard to the documents which are on record and which may be relevant and can be produced by it for the purpose - appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Entitlement to Cenvat credit for countervailing duty paid on inputs.
2. Procedural compliance and documentation requirements for availing Cenvat credit.
3. Impact of non-registration and clandestine clearance on Cenvat credit eligibility.
4. Applicability of precedents in similar cases.

Issue-wise Detailed Analysis:

1. Entitlement to Cenvat Credit for Countervailing Duty Paid on Inputs:
The core question of law in this case was whether the appellant/assessee was entitled to Cenvat credit for the countervailing duty paid on inputs. The Anti Evasion Branch of Central Excise investigated the appellant’s manufacturing and sales activities, leading to a seizure of goods and documents. The appellant’s request for resolution through the Customs and Excise Settlement Commission was rejected due to non-registration and non-filing of returns. The Commissioner’s final order denied the Cenvat credit, citing non-registration and clandestine clearances without proper invoices and records.

2. Procedural Compliance and Documentation Requirements for Availing Cenvat Credit:
The Commissioner emphasized that the appellant and its supplier were not registered at the relevant time, and clearances were made without proper invoices and records. The Tribunal upheld this view, noting that Cenvat credit requires documented receipt of duty-paid inputs. The appellant failed to provide such documentation, leading to the denial of credit. The Tribunal distinguished this case from others where non-registration did not bar Cenvat credit, as the present case involved transactions without any duty-paid receipt documentation.

3. Impact of Non-Registration and Clandestine Clearance on Cenvat Credit Eligibility:
The Commissioner found that the appellant clandestinely manufactured and cleared goods without accounting for them or paying excise duty. The appellant created fictitious firms to mislead authorities and evade duty. Despite these findings, the appellant argued that it should be allowed Cenvat credit for the countervailing duty paid on imported PVC resin, which was used in manufacturing. The appellant cited precedents where courts allowed credit despite procedural lapses, emphasizing that substantive compliance should not be denied on technical grounds.

4. Applicability of Precedents in Similar Cases:
The appellant relied on several precedents, including the Supreme Court’s decision in Formica India Division vs. CCE, where the Court allowed modvat credit despite non-compliance with procedural norms. Similarly, in Rukmini Industries, the High Court permitted credit despite suppression of manufacture and clearance. The Court noted that procedural lapses should not lead to double duty recovery. The Tribunal distinguished these cases, stating that the present case involved undocumented transactions, making it impossible to verify duty payment on inputs.

Conclusion:
The Court found that the Commissioner’s findings established the use of imported PVC resin in manufacturing, despite the appellant’s procedural lapses and clandestine activities. The Court held that the denial of Cenvat credit was unjustified, given the documented payment of countervailing duty on the imported resin. The Court set aside the Tribunal’s order and directed the Central Excise Authorities to grant Cenvat credit based on available documents. The question of law was answered in favor of the assessee, allowing the appeal.