2023 (2) TMI 659 - AT - Central Excise

Recovery of credit distributed by the registered input service distributor - Area Based Exemption - Disallowance of CENVAT Credit - disallowance of credit attributable to the other two factories in proportion to production that should, according to central excise authorities, have been excluded from the pool available for distribution - HELD THAT - On perusal of the decision of the Hon ble High Court of Bombay in re Mahindra Mahindra Ltd 2019 (12) TMI 230 - BOMBAY HIGH COURT , it is found that there is an elaborate discussion on the logic in the decision of the Tribunal to narrow the intent of rule 6 of CENVAT Credit Rules, 2004 to basic excise duties only. Taking note that the submission of Revenue mirrored the decision of the Hon ble High Court of Uttarakhand in Hero Motocorp Ltd v. Commissioner of Central Excise, Dehradun 2018 (1) TMI 770 - UTTARAKHAND HIGH COURT , the Hon ble High Court of Bombay held that the distinction in the phrases in section 2A of Central Excise Act, 1944 was not intended as mutually exclusive enumeration. The decision of the Tribunal in re Fosroc Chemicals India Pvt Ltd 2016 (1) TMI 21 - CESTAT BANGALORE was also about a dispute in which the other cess on the output of the units, entitled to the same area based exemption , was to be computed on the basic excise duty which was exempted. The distinction of automobile cess , in so far as not being a levy under Central Excise Act, 1944 and not levied on basic excise duty, with other cess , that are exempted owing to exemption of basic excise duty makes the position abundantly clear. Nothing further survives in the finding of the adjudicating authority in the impugned order as the discharge of automobile cess effaces coverage of rule 6 of CENVAT Credit Rules, 2004 to the output of the Rudrapur and Haridwar factories. Appeal allowed.

Summary

Issues Involved:
1. Recovery of credit distributed by the registered input service distributor.
2. Interpretation of 'exempted goods' under Rule 2(d) of CENVAT Credit Rules, 2004.
3. Applicability of Rule 6 of CENVAT Credit Rules, 2004.
4. Relevance of previous judgments and decisions by higher courts.

Detailed Analysis:

1. Recovery of Credit Distributed by the Registered Input Service Distributor:
The appellant, M/s Mahindra & Mahindra Ltd (Automotive Sector), challenged the order of the Commissioner of Central Excise, Mumbai, which sought to recover credit distributed by the registered input service distributor. This credit was distributed to the appellant's unit as well as to the manufacturing units at Rudrapur and Haridwar, which were entitled to area-based exemption under Notification No. 50/2003-CE dated 10th June 2003. The central excise authorities argued that these units were precluded from deriving the benefits of CENVAT Credit Rules, 2004 to the extent of the exemption.

2. Interpretation of 'Exempted Goods' Under Rule 2(d) of CENVAT Credit Rules, 2004:
The appellant contended that the Rudrapur and Haridwar units, although exempt from basic excise duty, were not manufacturing 'exempted goods' as defined in Rule 2(d) of CENVAT Credit Rules, 2004. They argued that 'automobile cess' levied under the Industrial (Development and Regulation) Act, 1951, along with other applicable cesses, was fully discharged by these units. However, the adjudicating authority held that:
- "Exempted goods" means excisable goods exempted from the whole of duty of excise leviable thereon, including goods chargeable to a Nil rate of duty.
- Exemption from excise duty means exemption only from basic excise duty, and any exemption from additional excise duty or cess must be explicitly stated in the notification.

3. Applicability of Rule 6 of CENVAT Credit Rules, 2004:
The appellant argued that the Kandivali unit, part of M/s Mahindra & Mahindra Ltd, received disputed credit distributed in proportion to sales of each unit without reversing credit under Rule 6 of CENVAT Credit Rules, 2004. They cited the Bombay High Court's decision in Mahindra & Mahindra Ltd v. Commissioner of Central Excise, which upheld the legality of discharging 'automobile cess' to exclude the Rudrapur and Haridwar units from being considered as manufacturers of 'exempted goods.'

4. Relevance of Previous Judgments and Decisions by Higher Courts:
The Learned Authorised Representative for the respondent referenced the Tribunal's decision in Fosroc Chemicals India Pvt Ltd v. Commissioner of Central Excise & Service Tax and the Supreme Court's decisions in Bajaj Auto Limited v. Union of India and SRD Nutrients Private Ltd v. Commissioner of Central Excise, which supported the view that exemptions should be limited to basic excise duty. However, the Bombay High Court's decision in Mahindra & Mahindra Ltd provided an elaborate discussion on the intent of Rule 6 of CENVAT Credit Rules, 2004, and held that 'automobile cess' should be excluded from the exemption as it was chargeable on value and not on basic excise duty.

Conclusion:
The Tribunal found that the discharge of 'automobile cess' effaced the coverage of Rule 6 of CENVAT Credit Rules, 2004, for the output of the Rudrapur and Haridwar factories. Consequently, the impugned order was set aside, and the appeal was allowed.

(Order pronounced in the open court on 16/02/2023)