2018 (12) TMI 8 - AT - Central Excise

Carry forward of accumulated credit on Debonding of units - Transition of CENVAT Credit - transfer of accumulated credit - applicability of rule 10 of CENVAT Credit Rules 2004/rule 11 of CENVAT Credit Rules 2004 - Held that - The scheme of indirect taxation requires that the tax burden is borne by the ultimate consumer i.e. non-assessee and all assessees in the production chain merely collect the duty for remitting to the government. At the same time excise duties are limited to the contribution made to the manufacture of any goods; this requires that for the proper administration thereof each stage in the manufacturing process should be entitled to disassociate itself from the duties discharged upto the immediately preceding for computation of excise liability. Thus the full burden of duty should without the privilege of passing on be borne by the first non-assessee in the chain of transactions. The input credit scheme is devised towards that end and embodied as the CENVAT Credit Rules 2004. Denial of CENVAT credit accumulated from duties discharged on procurements employed in exported goods would therefore load the burden on the exporter which defeats the very premise that is contained in the CENVAT Credit Rules 2004. The provisions of rule 10 or rule 11 will not apply to debonding units. It is also patently clear that a similar provision has not been explicitly incorporated in the CENVAT Credit Rules 2004 for such debonding units - Denial of such utilization would have the impact of taxing the exporter as ultimate consumer and burdening the appellant with an implied duty on exports that is not authorized by law. To do so is to act illegally. Denial of carry forward of accumulated CENVAT credit to assessees debonding from the 100% Exported Oriented Unit scheme to continue operations without the privileges is not correct in law - appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Denial of continuity of CENVAT credit balance upon debonding from the '100% Export Oriented Unit' scheme.
2. Recovery of utilized credit amount for duty liability post debonding.
3. Interpretation of rule 10 of CENVAT Credit Rules, 2004 in the context of debonding units.
4. Applicability of CENVAT credit scheme to units operating under export promotion schemes.
5. Dispute regarding the burden of duty on exporters and the premise of CENVAT Credit Rules, 2004.

Issue 1: Denial of continuity of CENVAT credit balance upon debonding:
The case involved M/s Technocraft Industries (India) Ltd debonding from the '100% Export Oriented Unit' scheme and facing denial of continuity of their CENVAT credit balance. The authorities argued that the accumulated credit lapses upon debonding, as new units registered under the Central Excise Act, 1944 are deemed to commence existence afresh without entitlement to transfer provisions. However, the appellant contended that the denial was based on a narrow interpretation of rule 10 of CENVAT Credit Rules, 2004 without considering the scheme's eligibility and the burden it would place on exporters.

Issue 2: Recovery of utilized credit amount for duty liability post debonding:
The authorities initiated proceedings to recover the utilized credit amount for duty liability post debonding. The appellant argued that the burden placed on exporters contradicts the premise of not saddling export value with duties. The appellant relied on a previous decision and highlighted that the existence of units till debonding was subject to special provisions, and the denial of carry forward would result in taxing exporters as ultimate consumers.

Issue 3: Interpretation of rule 10 of CENVAT Credit Rules, 2004:
The case involved a detailed analysis of the interpretation of rule 10 of CENVAT Credit Rules, 2004 in the context of debonding units. The authorities argued that debonding units are not explicitly covered by the rules, while the appellant emphasized the need for a broader examination of the rule's applicability and the scheme's fundamental premise.

Issue 4: Applicability of CENVAT credit scheme to units under export promotion schemes:
The judgment discussed the applicability of the CENVAT credit scheme to units operating under export promotion schemes. It was noted that such units, despite enjoying exemptions on procurement, are entitled to utilize accumulated CENVAT credit upon clearance of goods for domestic consumption. The judgment emphasized that denying such utilization would burden exporters and go against the scheme's facilitating nature.

Issue 5: Dispute regarding the burden of duty on exporters and CENVAT Credit Rules, 2004 premise:
The judgment delved into the dispute regarding the burden of duty on exporters and the premise of CENVAT Credit Rules, 2004. It highlighted that the scheme aims to ensure that duty burden is borne by the ultimate consumer and that denying CENVAT credit to exporters would contradict this premise, ultimately burdening exporters with unauthorized duties. The judgment concluded that denying carry forward of accumulated CENVAT credit to debonding units is not legally correct and allowed the appeals.

Overall, the judgment addressed the complex issues surrounding the denial of CENVAT credit continuity, recovery of utilized credit post debonding, interpretation of CENVAT Credit Rules, 2004, applicability of the scheme to units under export promotion schemes, and the burden of duty on exporters within the framework of the law and legal principles governing CENVAT credits.