2018 (10) TMI 1368 - AT - Central Excise

100% EOU / STP - CENVAT Credit - inputs removed as such - Rule 3 (5) of Cenvat Credit Rules (CCR) 2004 - Department took the view that an user industry in STP / 100% EOU could bring excisable goods without payment of duty under CT-3 certificates only from the factory of manufacturer of the goods and such manufacturer should have followed procedures contained in Central Excise Rules 2002 - N/N. 22/2003-CE dt. 31.03.2003. Held that - Larger Bench in Lakshmi Automatic Loom Works Ltd. 2008 (10) TMI 57 - CESTAT CHENNAI had held that condition of direct procurement from factory of DTA manufacturer to EOU / EHTP units etc. is not merely procedural, that inputs cleared as such by such DTA assessee to 100% EOU cannot be deemed to have been manufactured by them, hence such assessee was not entitled to remove the inputs without reversal of credit or payment of equivalent amount of duty - the said decision is overturned by Hon ble High Court of Karnataka in CCE Bangalore Vs Solectron Centum Electronics Ltd. 2014 (10) TMI 596 - KARNATAKA HIGH COURT , where it was held that credit could not be denied on the ground that the EHTP unit concern was not procuring the excisable goods directly from the factory of manufacturer or warehouse. The provisions and conditionalities of Rule 3 (5) ibid will apply to both inputs and capital goods , unless otherwise qualified in the said sub-rule. The Ld. Advocate is correct in his assertion that the ratio laid down by the Tribunal Larger Bench in the case of Lakshmi Automatic Loom Works Ltd. Vs CCE Trichy has surely been overturned and set aside by the Hon ble High Court of Karnataka in judgment - appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Interpretation of Rule 3(5) of Cenvat Credit Rules 2004 regarding payment of duty on goods cleared to 100% EOU/STP units.
2. Applicability of Tribunal's Larger Bench decision in Lakshmi Automatic Loom Works Ltd. case.
3. Impact of High Court judgment in CCE Bangalore Vs Solectron Centum Electronics Ltd. case on the current matter.

Analysis:

Issue 1: Interpretation of Rule 3(5) of Cenvat Credit Rules 2004
The appellants, a DTA unit, cleared monitors to STP units/100% EOUs under CT-3 certificates after availing cenvat credit. The dispute arose regarding the eligibility to clear monitors under CT-3 certificates without payment of duty. The department contended that the appellants, who only manufactured computer systems in their unit, were not entitled to clear monitors under CT-3 certificates under Notification No.22/2003-CE. The appellants were directed to pay an amount equal to the credit taken on the monitors cleared to 100% EOU/STP units under Rule 3(5) of CCR 2004. The Commissioner (Appeals) upheld this order, leading to the appeal before the Tribunal.

Issue 2: Applicability of Tribunal's Larger Bench decision
The Tribunal's Larger Bench decision in Lakshmi Automatic Loom Works Ltd. case held that direct procurement from the factory of the DTA manufacturer to EOU/EHTP units is not merely procedural. It stated that inputs cleared by a DTA assessee to 100% EOU cannot be deemed manufactured by them, thus requiring reversal of credit or payment of equivalent duty. However, the controversy in the current appeal pertained to a different period and legal provision under Rule 3(5) of CCR 2004, not covered by the earlier decision.

Issue 3: Impact of High Court judgment in CCE Bangalore Vs Solectron Centum Electronics Ltd. case
The High Court judgment in the Solectron Centum Electronics case held that credit could not be denied based on direct procurement from the factory of the manufacturer. The Court analyzed the applicability of the Tribunal's Larger Bench decision in Lakshmi Automatic Loom Works Ltd. The Tribunal, following the High Court's judgment, overturned the earlier decision, stating that the requirement to pay duty equal to availed cenvat credit on inputs removed as such does not apply when goods are cleared to EOU/EHTP units. Consequently, the impugned order was set aside, and the appeal was allowed with consequential benefits.

In conclusion, the Tribunal's decision was based on the interpretation of Rule 3(5) of CCR 2004, the applicability of previous judgments, and the impact of the High Court's ruling on similar cases, ultimately leading to the allowance of the appeal in favor of the appellants.