2019 (8) TMI 572 - HC - Central Excise

100% EOU - CENVAT Credit - subsequent debonding of unit - appellant paid appropriate Duty and Countervailing Duty (Additional Excise Duty) on the imported/indigenously procured raw materials lying in Stock and capital goods on depreciated value - whether such Duties paid by the Assessee upon De-bonding can be availed as Cenvat Credit under Rule 3(1) of Cenvat Credit Rules 2004 against its Output Duty liability, or not in terms of para 8 of Notification No.22/2003 dated 31.3.2003? HELD THAT - The exempted Duties under the respective enactments viz., Central Excise Duties, Additional Excise Duties and Additional Customs Duties availed by the 100% EOU Assessee at the relevant point of time, were admittedly paid by Assessee on 23.12.2002 when, it appears that it became a Domestic Tariff Area (DTA) Unit - There is also no dispute that the Duties in question were paid by the Assessee on such De-bonding on 23.2.2012, however, not adopting the procedure for payment through TR 6 Challan Forms. A careful reading of Rule 3 would establish that the purpose of giving Cenvat Credit for which various Duties paid as enumerated in 11 Clauses of Rule 3 is to give set off for the Duties paid on Inputs or Inputs Services including the Duties, Taxes or Cess as enumerated in 11 Clauses is to remove the cascading effect of duties which concept is at the bottom of Cenvat Credit Rules 2004. The whole of the Rule 3(1) is the enabling provision for giving such Cenvat Credit and the Proviso therein inserted later on by Notification No.35 of 2008 dated 24.9.2008 cannot be said to be a stand alone enabling power to provide such Cenvat Credit to the Assessee. Such a novel and out of context interpretation of the said Proviso, which, we feel is not only not happily worded, but also, placed at the wrong place in Rule 3(1), cannot be accepted to defeat the very purpose of Rule 3(1) upon an 100 EOU, when converted upon De-bonding to a DTA. There is no dispute or quarrel on the legal proposition on how to interpret a later on inserted Proviso in an enactment. But, what we are looking at is the insertion of Proviso in Rule 3 of Cenvat Credit Rules 2004 which we find it to be more in the nature of an Explanation clarifying what was in doubt earlier viz., about allowing of Cenvat Credit in respect of capital goods earlier. The allowing of Cenvat Credit on raw material was never in doubt whether on de-bonding or otherwise on procurement of raw material. The learned Tribunal has erred in denying such benefit of Cenvat Credit to the Assessee in the present cases and therefore, the present Appeals filed by the Assessee deserve to be allowed - Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Eligibility of Cenvat Credit on duties paid upon de-bonding of a 100% Export Oriented Unit (EOU) to a Domestic Tariff Area (DTA) unit.
2. Interpretation of Rule 3 of the Cenvat Credit Rules, 2004 and the proviso inserted by Notification No.35/2008-CE(NT) dated 24.9.2008.
3. Compliance with procedural requirements for availing Cenvat Credit, specifically payment through TR6 Challan Forms.

Detailed Analysis:

1. Eligibility of Cenvat Credit on Duties Paid upon De-bonding:
The core issue was whether duties paid by the assessee upon de-bonding from a 100% EOU to a DTA unit could be availed as Cenvat Credit under Rule 3(1) of the Cenvat Credit Rules, 2004. The Assessee argued that Rule 3 allows manufacturers to take Cenvat Credit for various duties, including excise duties, additional excise duties, countervailing duties, and education cess, paid upon de-bonding. They cited the decision of the Mumbai Bench of CESTAT in CCE v. Rajdhani Fab. Pvt. Ltd., affirmed by the Bombay High Court, which supported their claim. The Revenue countered that the proviso inserted by Notification No.35/2008-CE(NT) restricts Cenvat Credit to the amount equal to central excise duty paid on capital goods at the time of de-bonding. The Tribunal upheld the Revenue's stance, denying the Cenvat Credit.

2. Interpretation of Rule 3 of the Cenvat Credit Rules, 2004 and the Proviso:
The High Court analyzed Rule 3 of the Cenvat Credit Rules, 2004, which enumerates 11 types of duties for which Cenvat Credit can be availed. The Court noted that the purpose of Rule 3 is to remove the cascading effect of duties by allowing set-offs for duties paid on inputs or input services. The Court found that the proviso inserted by Notification No.35/2008-CE(NT) was misinterpreted by the Tribunal and the Adjudicating Authority. The Court opined that the proviso, which states that Cenvat Credit shall be allowed for the amount equal to central excise duty paid on capital goods at the time of de-bonding, was intended as an explanation rather than a restriction. The Court emphasized that the proviso should be read harmoniously with the main provision to support the overall objective of Rule 3, which is to allow Cenvat Credit for all duties paid, including those on raw materials and capital goods upon de-bonding.

3. Compliance with Procedural Requirements:
The Revenue argued that the duties in question were not paid through the prescribed TR6 Challan Forms, as required by Rule 4 of the Cenvat Credit Rules, 2004. The Assessee contended that the payments were indeed made through TR6 Challan Forms upon de-bonding. The Court did not find sufficient grounds to deny the Cenvat Credit based on procedural compliance, given the broader interpretation of Rule 3 and the intent to allow set-offs for duties paid.

Conclusion:
The High Court concluded that the Tribunal erred in denying the benefit of Cenvat Credit to the Assessee. The Court allowed the appeals, set aside the orders of the Assessing Officer and the Appellate Authority, and clarified that the benefit of Cenvat Credit should be extended to all duties paid upon de-bonding, not just those on capital goods. The Court emphasized the need for a harmonious interpretation of Rule 3 and the proviso to fulfill the objective of removing the cascading effect of duties. The appeals were allowed, and the connected miscellaneous petitions were closed, with no order as to costs.