2019 (12) TMI 525 - AT - Central Excise

CENVAT Credit - inputs were cleared as such by the supplier - credit denied for the reason that the subject goods has not been manufactured by the supplier - Rule 3(5) of the CENVAT Credit Rules, 2004 - HELD THAT - As per Rule 3(5) of the CENVAT Credit Rules, 2004, which deals with the bought out goods, states that when inputs or capital goods are removed as such from the factory of the manufacturer, the manufacturer shall pay an amount equal to the credit availed in respect of such input or capital goods and such removal shall be made under the cover of central excise invoice in the manner prescribed in Rule 9 of the said Credit Rules. Further, as per Rule 3(6) of the Credit Rules, the amount paid under aforesaid Rule 3(5) shall be eligible as CENVAT credit as if it was a duty paid by the person who removed such goods - Therefore, in view of the specific provisions contained in Rule 3(5) and 3(6) aforesaid, the appellant company receiving input from the supplier who has removed the said goods as such (being bought out goods) is legally entitled to credit even if the said goods have not been manufactured by the supplier. Thus, the appellant is legally entitled to avail credit on inputs which though not manufactured by the supplier, has been removed by the supplier on the strength of duty paid excise invoice particularly in the fact of the case that goods have been physically received by the appellant for use in manufacture. The entire proceedings against the appellant for denial of credit, there is no allegation or finding that the appellant has intentionally availed irregular credit with ulterior motive or that the credit has been availed wrongly in collusion with the supplier. In absence thereof, denial of credit would be harsh and highly unwarranted - credit is legally eligible and therefore the impugned demand is set aside. Appeal allowed - decided in favor of appellant.

Summary

Issues:
Appeal against demand of central excise duty and denial of Cenvat credit on inputs.

Analysis:
The appeal was filed by M/s. Jai Balaji Industries Limited against the demand of central excise duty upheld by the Ld. Commissioner (Appeals) for the period 2011-12 to 2015-16 due to denial of Cenvat credit on inputs. The dispute arose as the department contended that the goods on which credit was availed were cleared 'as such' at a higher value by the supplier, M/s. Inductotherm (I) Pvt Ltd, Ahmedabad. The appellant argued that they availed credit in good faith based on valid central excise invoices, even if the goods were not manufactured by the supplier or duty was paid at a higher value. The department relied on a Gujarat High Court decision stating that duty paid on bought out goods cannot change the value at clearance, and hence, Cenvat credit cannot be availed.

The CESTAT Kolkata analyzed the case and found that as per Rule 3(5) and 3(6) of the CENVAT Credit Rules, the appellant was legally entitled to credit on inputs even if the goods were not manufactured by the supplier but cleared 'as such'. The tribunal referred to precedents like the Punjab and Haryana High Court cases to support the position that credit cannot be denied to the recipient when duty was paid, even if not legally payable or paid at a higher rate. The tribunal emphasized that the appellant had received the goods and used them in manufacturing, justifying the credit availed.

The tribunal further noted that there was no evidence of intentional irregular credit availing by the appellant, and denial of credit without such proof would be unwarranted. Relying on legal precedents and the absence of collusion or ulterior motive in availing credit, the tribunal set aside the demand, allowing the appeal with consequential relief. The judgment was pronounced on 11 December 2019 by SHRI P.K.CHOUDHARY, MEMBER (JUDICIAL) of the Appellate Tribunal CESTAT KOLKATA.