2020 (2) TMI 902 - AT - Central Excise

Cash refund of CENVAT credit - CENVAT credit on inputs cleared as such by the supplier - rejection on the ground that the credit was availed by the EOU unit on the goods received from the DTA unit, by reversing/payment of duty through CENVAT Credit which was not admissible to the said DTA unit on inputs cleared as such - Rule 5 of CCR - HELD THAT - On plain reading of the Rule 11(3), it is clear that the manufacturer of a final product shall be required to pay an amount equivalent to the CENVAT Credit taken by him in respect of the inputs received for use in the manufacture of final product and lying in stock or is contained in the final product if he opts for exemption on the final product, whereas on the other hand, Rule 3(5) of CENVAT Credit Rules, 2004 allows the manufacturer to clear the inputs as such from the factory or premises of the provider of the output service, on payment of an amount equivalent to the credit availed in respect of such inputs and the removal shall be made in accordance with Rule 9 of CENVAT Credit Rules, 2004 i.e. against proper invoice - Both the said rules operate in different spheres and do not overlap. In the present case, the Appellants received the inputs when the final product was dutiable, on its exemption, chose to clear the inputs lying in stock as such following the procedure laid down in Rule 3(5) of CENVAT Credit Rules, 2004 without its use in the manufacture of exempted final product - If the argument of the Revenue is accepted that the credit attributable to the inputs lying in stock would lapse, then the Appellants would be required to clear the inputs as such either without payment of duty or reversal of credit again on the same quantity of inputs on its clearance as such which would lead to an absurd situation and it cannot be intended by the legislature. Therefore, clearance of the inputs lying in stock as on 01.03.2007, after reversal of the credit following the procedure laid down under Rule 3(5) of CENVAT Credit Rules, 2004 is in harmony with Rule 11(3) of CENVAT Credit Rules, 2004 and not in conflict - Hence, reversal of credit on the inputs cleared as such, is in accordance with the law. Whether 100% EOU unit is entitled to refund the accumulated CENVAT Credit of ₹ 78,97,716/- under Rule 5 of CENVAT Credit Rules, 2004 on export of the finished goods? - HELD THAT - Since the DTA unit has correctly reversed the credit on the inputs cleared as such to their 100% EOU unit, who in turn, availed the credit and utilised the same in the manufacture of exported goods, cash refund of accumulated CENVAT Credit of ₹ 78,97,716/- under Rule 5 of CENVAT Credit Rules, 2004 cannot be held to be inadmissible to the EOU unit. Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Whether the DTA unit is required to reverse the total CENVAT Credit on clearance of inputs to the 100% EOU unit when the final product became exempted.
2. Whether the 100% EOU unit is entitled to a refund of accumulated CENVAT Credit on export of finished goods.

Analysis:

Issue 1:
The appeal involved the determination of whether the DTA unit was obligated to reverse the CENVAT Credit on the clearance of inputs to the 100% EOU unit when the final product became exempted. The Appellant argued that they followed the procedure under Rule 3(5) of CENVAT Credit Rules, 2004 by clearing the inputs 'as such' without utilizing them in the manufacture of the exempted final product. The Revenue contended that Rule 11(3)(ii) mandated the reversal of CENVAT Credit. The Tribunal analyzed the relevant rules and concluded that both rules operated in different spheres. The Appellants' actions of clearing inputs 'as such' after exemption were found to be in harmony with Rule 11(3) and not conflicting. Therefore, the reversal of credit on the inputs cleared as such was deemed lawful.

Issue 2:
Regarding the entitlement of the 100% EOU unit to a refund of accumulated CENVAT Credit on export of finished goods, the Tribunal found that the EOU unit correctly reversed the credit on inputs cleared to them by the DTA unit. The inputs were utilized in the manufacture of exported goods, making the cash refund of accumulated CENVAT Credit admissible under Rule 5 of CENVAT Credit Rules, 2004. The Tribunal set aside the impugned orders and allowed both appeals with consequential relief.

In conclusion, the Tribunal's judgment clarified the obligations of the DTA unit in reversing CENVAT Credit on cleared inputs and upheld the admissibility of the cash refund claim by the 100% EOU unit. The decision provided a detailed analysis of the applicable rules and resolved the issues raised in the appeals effectively.