2020 (3) TMI 312 - HC - Central Excise

Reversing of lapsed cenvat credit - Rule 11(3) of CCR, 2004 - Benefit of Notification dated 9 July 2004 availed and balance of CENVAT Credit reversed - Appellant put the Respondent to the notice in respect of their failure to reverse the CENVAT Credit of ₹ 2,86,83,157/- in terms of Rule 11(3). The contention of the Appellant is that Rule 11(3) of the Cenvat Credit Rules, 2004 envisaged lapsing of remaining CENVAT Credit and that being the position it could not have been utilized by the Respondent and their action of doing so has resulted on a tax liability which is rightly to be enforced through the show cause notice. HELD THAT - The bare perusal of Sub Rule (3) of Rule 11 shows that stipulation of lapsing is included in Clause (ii) and not in Clause (i). These two clauses are separated by hyphen and use of the word or . Secondly in the Rule 11(3) (i) it is the option given to the manufacturer or producer for obtaining exemption. In category (ii) there is no such option but a reference is made for final product which has been exempted absolutely under Section 5A of the Act. Therefore, these two categories being distinct, the placement of stipulation cannot be considered as a mere draftsman error. The questions as proposed do not give rise to any substantial question of law - Appeal dismissed.

Summary

Issues:
Challenge to order of Customs, Excise and Service Tax Appellate Tribunal regarding CENVAT Credit reversal.

Analysis:
The Respondent, engaged in manufacturing Polyester Texturised Yarn and Grey Fabrics, availed CENVAT Credit and reversed the balance after March 2007 as per Notification dated 9 July 2004. A Show cause notice was issued for failure to reverse credit. The Tribunal held that Rule 11(3)(i) does not mandate lapsing of CENVAT Credit, thus allowing the Respondent's appeal. Appellant raised questions on whether the credit should lapse, be reversed, or carried forward for subsequent duty payment, and regarding availing credit on capital goods under the exemption notification.

The Appellant argued that Rule 11(3) necessitates lapsing of remaining CENVAT Credit, enforcing tax liability through the notice due to Respondent's utilization. They contended that the stipulation in Rule 11(3)(ii) applies to both contingencies, dismissing it as a draftsman error. The Respondent's counsel highlighted the distinction in Rule 11(3) categories, asserting that lapsing provision is omitted from Rule 11(3)(i) intentionally, citing a relevant case.

Rule 11(3) mandates a manufacturer to pay an amount equal to CENVAT credit if opting for exemption or if the final product is absolutely exempted, with the remaining balance lapsing. The Court noted the distinct categories in Rule 11(3), emphasizing the absence of lapsing provision in Clause (i) compared to Clause (ii). Referring to a similar interpretation by the Rajasthan High Court, the Court concluded that the questions raised do not present substantial legal issues.

In conclusion, the Court dismissed the appeal, upholding the Tribunal's decision based on the interpretation of Rule 11(3) and the distinction between its clauses. The judgment clarified the application of CENVAT Credit rules and the implications of availing exemptions under the relevant notifications.