2018 (10) TMI 1474 - HC - Central Excise

CENVAT Credit - common inputs used in manufacture of dutiable and exempt goods - goods cleared to SEZ developers - amendment in rule 6 - effect of amendment - retrospective or prospective - Provisions of the rule substituted. Whether an amount equal to 10% of the value of the final product cleared by the respondent/assessee, without payment of duty, to developers of SEZ, has to be paid by the assessee in terms of Rule 6(3)(b)/Rule 6(3)(i), since the assessee did not maintain separate accounts and that Rule 6(6) of the Rules does not give any exception to the clearances made to developers of SEZ from operation of Rule 6(3)(b)/6(3)(i) of the said Rules? Held that - Identical view was taken by the High Court of Karnataka in the case of Commissioner of Central Excise and Sales Tax, Bangalore vs. Fosroc Chemicals (India) Pvt.Ltd., 2014 (9) TMI 633 - KARNATAKA HIGH COURT . The question which was framed for consideration was whether the amendment to the Cenvat Credit Rules 2004, by substituting clause (i) of sub-rule (6) of Rule 6 of Cenvat Credit Rules, 2004, by way of notification No.50/2008-C.E.(N.T.), dated 31.12.2008 is prospective in operation or retrospective? - The Substantial Question of Law was answered in favour of the assessee holding that the said amendment is retrospective. On a reading of the amendment, it is evident that clause (i) of sub-rule 6 of Rule 6 was substituted, thereby, the provisions of sub-rules (1), (2), (3) and (4) shall not be applicable in case the excisable goods removed without payment of duty or either cleared to a unit in a special economic zone or to a developer of a special economic zone for their authorised operations. Thus, the question would be as to what would be the meaning of the word substitute - the substitution by way of an amendment dated 31.12.2008 has to be read to put in place instead of the Rule, which was in existence prior to the said Notification. In other words, it has to be read as a replacement of an existing Rules. The Substantial Questions of Law framed for consideration are answered in favour of the respondent/assessee - appeal dismissed - decided against Revenue.

Summary

Issues Involved:
1. Whether the amendment of Rule 6(6) of the CENVAT Credit Rules under Notification 50/2008-CE (N.T.), dated 31.12.2008, is clarificatory and therefore retrospective in nature.
2. Whether the assessee is liable to pay 10% of the value of goods cleared to SEZ developers as per Rule 6(6) of the CENVAT Credit Rules prior to 31.12.2008 when common inputs are used and separate accounts are not maintained.

Issue-wise Detailed Analysis:

1. Retrospective Nature of the Amendment:
The primary issue is whether the amendment to Rule 6(6) of the CENVAT Credit Rules by Notification 50/2008-CE (N.T.), dated 31.12.2008, is clarificatory and thus retrospective. The Tribunal, relying on the Chhattisgarh High Court's decision in Union of India vs. Steel Authority of India Ltd., held that the amendment is retrospective. The Chhattisgarh High Court interpreted that the amendment, being a "substitution," is retrospective. The court noted that the SEZ Act treats both SEZ units and developers equally, and the amendment corrects an inadvertent omission, ensuring that developers receive the same benefits as units. The High Court of Karnataka in Commissioner of Central Excise and Sales Tax, Bangalore vs. Fosroc Chemicals (India) Pvt. Ltd., supported this view, stating that the amendment is clarificatory and should be read as if it was always part of the original Rules. The Punjab & Haryana High Court in Commissioner of Central Excise vs. DEE Development Engineers Pvt. Ltd. also echoed this interpretation, emphasizing consistency across jurisdictions.

2. Liability to Pay 10% for Goods Cleared to SEZ Developers:
The second issue is whether the assessee must pay 10% of the value of goods cleared to SEZ developers before 31.12.2008 when common inputs are used, and separate accounts are not maintained. The Revenue argued that the exception under Rule 6(6) applied only to SEZ units and not developers before the amendment. However, the Tribunal, supported by precedents from various High Courts, concluded that the amendment to include SEZ developers is retrospective. The courts reasoned that supplies to SEZ developers are to be treated as exports, which are not subject to excise duty, aligning with the principle that excise duty is not levied on exports. The courts found that treating SEZ developers differently from units was an inadvertent error corrected by the amendment.

Conclusion:
The Madras High Court, agreeing with the Chhattisgarh, Karnataka, and Punjab & Haryana High Courts, held that the amendment to Rule 6(6) of the CENVAT Credit Rules is retrospective. Consequently, the assessee is not liable to pay 10% of the value of goods cleared to SEZ developers before 31.12.2008. The appeal by the Revenue was dismissed, with the court clarifying that if the Supreme Court decides otherwise in pending appeals, the matter may be reconsidered by the competent authority without raising the plea of limitation.