2019 (9) TMI 833 - AT - Central Excise

CENVAT Credit - inputs received from EOU - Rule 3(7)(a) of CCR 2004 - Department was of the view that the appellants have not complied with the provisions of Rule 3(7)(a) of CENVAT Credit Rules 2004 and availed excess credit besides wrongly availing credit of SAD - HELD THAT - The excess credit on this account is only ₹ 2,28,722/- for the period April 2006 to March 2009 and ₹ 1,23,835 for the period April 2009 to February 2010 where the total credit availed for these periods is above ₹ 3 crores. Therefore the contention of the appellant that this was a mistake in calculation and that they were not aware of the revised formula prescribed in the Rules is acceptable - the demand raised for the extended period cannot sustain and requires to be set aside. Liability for Interest and penalty - HELD THAT - The appellant is liable to pay interest - However with regard to penalties, since this has been reversed, penalties imposed in this regard are unwarranted and requires to be set aside. CENVAT Credit of SAD - HELD THAT - Reliance placed in the case of M/S METACLAD INDUSTRIES VERSUS CCE, MUMBAI-II 2012 (11) TMI 244 - CESTAT MUMBAI where it was held that there is no warrant to restrict the scope of the term additional duty of customs occurring in the formula to only the additional duty leviable under sub-section (1) of section 3 and not to the additional duty leviable under sub section (5) thereof. The impugned orders are modified to the extent of setting aside the credit availed on SAD as well as credit availed on inputs for the extended period - demand of credit availed on inputs for the normal period as well as interest thereof is upheld - penalties set aside. Appeal allowed in part.

Summary

Issues:
1. Excess credit availed on inputs from Export Oriented Units (EOU) under CENVAT Credit Rules 2004.
2. Availing credit of Special Additional Duty (SAD) paid by EOU.

Analysis:

Issue 1: Excess credit availed on inputs from Export Oriented Units (EOU) under CENVAT Credit Rules 2004

The department alleged that the appellants availed excess credit on inputs from EOU and wrongly availed credit of SAD. The original authority confirmed the demand of excess credit availed for the period from April 2006 to February 2010 but dropped the demand for credit availed on SAD post 7.09.2009. The appellant argued that the excess credit was due to calculation errors and not intentional evasion. They contended that the excess credit for the normal period had been reversed upon detection by the department. The Tribunal found the excess credit availed to be minimal compared to the total credit availed, accepting the appellant's explanation of calculation errors. Thus, the demand for the extended period was set aside.

Issue 2: Availing credit of Special Additional Duty (SAD) paid by EOU

The appellant argued that they were entitled to credit on SAD based on prior decisions and amendments to the rules. They cited precedents to support their claim that the credit on SAD was allowable even before 7.09.2009. The Tribunal analyzed the legal and economic reasons for allowing credit on SAD, emphasizing the need to prevent market distortions and ensure a level playing field. Relying on the cited decisions, the Tribunal concluded that the appellants were rightly entitled to credit on all additional duties of customs paid by the EOU, including SAD. Consequently, the demand for credit availed on SAD was set aside.

In conclusion, the Tribunal modified the impugned orders by setting aside the credit availed on SAD and for inputs for the extended period. The demand for credit availed on inputs for the normal period and the associated interest were upheld, while the penalties imposed were set aside. The appeal was partly allowed in accordance with the findings.