2020 (8) TMI 77 - AT - Central Excise

CENVAT Credit - violation of Section 5A(1A) of the Act and Rules 3(1) and 6(1) of the Central Excise Rules, 2002 - applicability of N/N. 65/95 dated March 16, 1995 - whether Notification No. 65/95-CE is a notification which grants exemption absolutely as envisaged under Section 5A(1) of the Act and consequently sub-section (1A) of Section 5A is attracted and therefore the appellant was bound to avail exemption granted by the said notification and the Cenvat credit availed was irregular, being impermissible as per Rule 6(1) of the Cenvat Credit Rules? HELD THAT - Section 5A (1) of the Act confers power upon the Central Government to exempt either absolutely or subject to such condition which are to be fulfilled before or after removal . Notification No. 65/95-CE comes under the second limb of Section 5A, i.e., subject to such condition which are to be fulfilled before removal - Section 5A(1A) applies only in cases covered by the first limb of Section 5A (1) of the Act, i.e., when an exemption notification issued thereunder grants exemption absolutely without laying down any condition for the same to be satisfied. Such being not the case in case of Notification No. 65/95-CE, the provisions of Section 5A(1A) cannot have application in case of the said notification. Hence, the reason contained in the impugned order that since the appellant had a workshop in the factory, the goods were manufactured therein and were used for maintenance and repair of machinery in the said factory, the exemption granted under Notification No. 65/95-CE was absolute and not conditional in the case of the appellant, is erroneous and not supported from Section 5A of the Act. It is settled by decisions of Courts and the Tribunal that in case of a conditional notification, an assessee has the option of either availing or not availing the benefit under the subject notification - reliance can be placed in the case of COMMISSIONER OF CENTRAL EXCISE VERSUS M/S FEDERAL MOGUL TPR INDIA LTD. 2015 (8) TMI 308 - KARNATAKA HIGH COURT . In the premises, the finding in the impugned order that availment of Cenvat credit by the appellant during the material periods was by contravening the provisions of Rule 6(1) of the said Rules is incorrect and unsustainable. There is no irregularity or wrong availment of Cenvat credit by the appellant. The appellant had the option to avail or not to avail the exemption under Notification No. 65/95-CE and since it paid duty on the goods manufactured without availing the exemption, the appellant was eligible to avail the Cenvat credit involved - There is no material disclosed in the show cause notice to establish that the requirements laid down in either Section 11D(1) or Section 11D(1A) are satisfied in the instant case. There is no material to evidence that the appellant has collected any amount by way of duty than assessed/determined and paid by it in respect of the subject goods. Further, since Notification No. 65/95-CE is conditional and the appellant has chosen not to avail the exemption thereunder, it cannot also be said that the appellant has collected any amount as representing duty on goods which are wholly exempt from duty or are chargeable to nil rate of duty. Hence, there can be no application of Section 11D in the instant case. The appropriation of ₹ 24,66,98,505/- and ₹ 2,66,46,006/- respectively by the impugned order is also therefore erroneous and cannot be sustained - appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Applicability of Notification No. 65/95-CE.
2. Validity of Cenvat credit availed.
3. Appropriation under Section 11D of the Act.
4. Invocation of the extended period for demand under the proviso to Section 11A(1) of the Act.

Issue-wise Detailed Analysis:

1. Applicability of Notification No. 65/95-CE:
The core issue was whether Notification No. 65/95-CE, which grants exemption from excise duty, is an "absolute" exemption under Section 5A(1) of the Central Excise Act, 1944. The Tribunal analyzed Section 5A(1) and (1A) and concluded that Notification No. 65/95-CE is not unconditional. It imposes four specific conditions: the goods must be manufactured in a workshop within the factory, used within the factory, and used for repairs or maintenance of machinery installed in the factory. Since the exemption is conditional, Section 5A(1A) does not apply, and the appellant had the option to either avail or not avail the exemption.

2. Validity of Cenvat Credit Availed:
The appellant's contention was that even if no excise duty was payable on the final product, they had cleared the goods upon payment of appropriate central excise duty, effectively reversing the Cenvat credit availed. The Tribunal agreed, citing various judicial precedents, including CCE Vs Federal Mogul TPR India Ltd., Incopac Parts Pvt. Ltd. Vs CCE, and Balkrishna Paper Mills Ltd. Vs. CCE. These cases established that in the context of a conditional exemption, the assessee has the discretion to pay duty and avail Cenvat credit. Therefore, the finding that the appellant contravened Rule 6(1) of the Cenvat Credit Rules was incorrect and unsustainable.

3. Appropriation under Section 11D of the Act:
Section 11D(1) and (1A) stipulate that any person who collects an amount representing duty in excess of the duty assessed or determined must pay it to the credit of the Central Government. The Tribunal found no evidence in the show cause notice or the impugned order to establish that the appellant collected any amount in excess of the duty assessed or determined. Since the appellant chose not to avail the exemption under Notification No. 65/95-CE, it could not be said that they collected any amount as representing duty on goods wholly exempt from duty. Consequently, the appropriation of ?24,66,98,505/- and ?2,66,46,006/- was erroneous and unsustainable.

4. Invocation of the Extended Period for Demand:
The appellant argued that the demand for the period July 2006 to June 2010 was barred by limitation and that there was no justification for invoking the extended period under the proviso to Section 11A(1) of the Act. The Tribunal did not specifically address this issue in detail, but the overall setting aside of the impugned order implies that the extended period invocation was not justified.

Conclusion:
The Tribunal set aside the impugned order dated August 30, 2012, passed by the Commissioner of Central Excise & Service Tax, Jamshedpur, and allowed the appeals with consequential relief. The Tribunal concluded that the appellant had the option to pay duty and avail Cenvat credit under the conditional Notification No. 65/95-CE, and the appropriation of amounts under Section 11D was incorrect. The demand for the extended period was also implicitly rejected.