2022 (4) TMI 69 - AT - Central Excise

100% EOU - Interpretation of statute - CENVAT Credit - entitlement to first time credit of education cess and secondary higher education cess or not - period April 2007 to January 2009 - whether the formula, prescribed for availment of CENVAT credit, by the domestic manufacturers in cases of procurement from EOUs, should be inclusive of education cess and secondary higher education cess, in terms of Rule 3(7) of CENVAT Credit Rules? - HELD THAT - The Rule says that credit shall be limited to Fifty per cent. of X multiplied by (1 BCD/100) multiplied by (CVD/100) , where BCD and CVD denote ad valorem rates, in per cent of basic customs duty and additional duty of customs leviable on the inputs or the capital goods respectively and X denotes the assessable value - Show-cause notice relies upon the words and expressions BCD and CVD used in the Rule and contends that the formula does not give any scope for education cess and secondary higher education cess. The learned Commissioner relies on Rule 3(1) of CENVAT Credit Rules and finds that it is crystal clear that whatever duty specified is available as credit under CENVAT Credit Rules, 2004 and the total such credit availed is referred to in these rules as CENVAT Credit. Wherever the term CENVAT credit appears in these rules, they refer to the credit of duty as specified in rule 3 and entirely include in the terms CENVAT credit. It is not merely talking about Basic Excise Duty and for that other duties individually. Thus, learned Commissioner concludes that CENVAT Credit as appears in the Rules is not limited to basic excise duty and for other duties also. Learned Commissioner appears to mean thereby, that the Rules do not contemplate any credit of cesses payable and paid. This Tribunal had gone into the very same issue in the case of ENCORE HEALTHCARE PVT LTD VERSUS COMMISSIONER OF CENTRAL EXCISE, AURANGABAD 2017 (5) TMI 1379 - CESTAT MUMBAI and have held that credit admissibility in such circumstances should be as per Rule 3(7) of CENVAT Credit Rules. Therefore, the impugned order does not require any interference inasmuch as the admissibility of credit of duty is concerned. Interest - HELD THAT - The appellants have wrongfully availed excess credit which they have reversed subsequently on being pointed out. However, as submitted by the learned Authorised Representative, interest requires to be paid in view of the Apex Court s decision in the case of UOI AND ORS. VERSUS IND-SWIFT LABORATORIES LTD. 2011 (2) TMI 6 - SUPREME COURT . Penalty - HELD THAT - The contention of the appellant that penalty may not be imposed as the issue involved is about the interpretation of the provisions of a statute and no mala fides can be imputed per se. Moreover, the appellants have immediately reversed the credit on being pointed out by the investigation team and there is no mention of protest whatsoever. For this reason, the department has not made out any case for imposition of penalty - Penalty set aside. The denial of excess credit availed by the appellant is upheld along with interest - penalty is set aside - Appeal allowed in part.

Summary

Issues:
1. Interpretation of Rule 3(7)(a) of Cenvat Credit Rules, 2004 regarding admissibility of education cess and secondary higher education cess in CENVAT credit for goods received from 100% EOU.
2. Applicability of CVD and cess paid on CVD as credit when goods are procured from EOU.
3. Invocation of extended period for demand and imposition of penalty.

Analysis:
1. The main issue in the judgment revolved around the interpretation of Rule 3(7)(a) of Cenvat Credit Rules, 2004 regarding the admissibility of education cess and secondary higher education cess in CENVAT credit for goods received from a 100% EOU. The Tribunal analyzed the rule which limited credit to 50% of the calculated amount based on ad valorem rates of basic customs duty and additional duty of customs, without explicitly mentioning education cess and secondary higher education cess. The Commissioner argued that the rule did not allow for the credit of cesses. The Tribunal considered previous decisions and concluded that the rule did not provide for the credit of cesses, leading to the denial of excess credit availed by the appellant.

2. Another issue addressed was the applicability of CVD and cess paid on CVD as credit when goods are procured from EOU. The appellant argued that CVD should be inclusive of education cess and secondary higher education cess, citing specific sections of the Finance Acts. The Tribunal referred to previous decisions and held that the appellant had wrongly availed excess credit, which was subsequently reversed. The Tribunal upheld the denial of excess credit availed by the appellant and ordered the payment of interest, emphasizing the need for compliance with the law.

3. The judgment also discussed the invocation of the extended period for demand and imposition of penalty. The appellant contended that the extended period should not be invoked as the issue involved interpretation, and there was a bona fide belief in the admissibility of first-time cess credit. The Tribunal considered the appellant's arguments, along with the reversal of wrongly availed credit and lack of protest, and set aside the penalty imposed, emphasizing the absence of mala fides. The Tribunal partially allowed the appeal by upholding the denial of excess credit availed, ordering the payment of interest, and setting aside the penalty.

Overall, the judgment clarified the interpretation of the relevant rules, emphasized compliance with statutory provisions, and considered the appellant's beliefs and actions in determining the outcome of the case. The decision highlighted the importance of adhering to legal provisions and the consequences of incorrect credit availment.