2023 (10) TMI 803 - AT - Central Excise

CENVAT Credit - inputs and input services that have gone into the manufacture of prototype cars, manufactured and exported by the appellants for testing - duty not paid on the final goods exported - prototype motor vehicles manufactured and exported by the appellants are excisable goods or not - extended period of limitation. Whether credit availed on inputs and input services that have gone into the manufacture of prototype cars, manufactured and exported by the appellants for testing, for the reason that duty has not been paid on the final goods exported? - HELD THAT - The CENVAT credit is admissible to a manufacturer or producer of final products and the provider of taxable service when such inputs are received in the factory; CENVAT credit is not admissible on such quantity of inputs used in or in relation to the manufacture of exempted goods subject to some exceptions. One such exception is that there is no bar on availment of CENVAT credit when the goods are exported under bond.In the instant case, the Department attempts to argue that the motor vehicles sent abroad by the appellants for testing are not suffering any duty; no export proceeds are realized and hence, CENVAT credit is not applicable - the contention of the Department has no legal basis. As per the provisions of CENVAT credit under CCR, 2004, there is no such bar on availment of CENVAT credit when the goods are exported. A conjoint reading of Rule 19 of CER and definition of final products would make it clear that the argument that the export goods are not final products is not acceptable. Further, there is nothing in Rule 19 to say that in case of breach of conditions of the bond, CENVAT credit attributable to the export goods shall be disallowed. The Department was within its right to take whatever action on the appellants for not adhering to the conditions of the bond. It is not on record whether any such action has been initiated by the Department - for the reason that export proceeds are not realized, CENVAT credit,which is otherwise admissible, cannot be denied. There is no provision under the Central Excise Rules or CENVAT Credit Rules to deny CENVAT credit just because the final products are destroyed during testing and for the reason that no export proceeds have been realized for such exports of prototypes - Hon ble Supreme Court and the Tribunal has been consistent in holding that testing is integral to the activity of manufacture and CENVAT credit attributable to the inputs that have gone into the manufacture of said final products cannot be denied to the appellants. Whether in the facts and circumstances of the case, extended period is invocable? - HELD THAT - There is considerable force in the arguments of the appellants. Moreover, the Department themselves have decided the issue in favour of the appellants for the year 2014-15. Notwithstanding the fact that the said order has been appealed against, it goes to prove that the issue was not free of doubt and the appellants had reasons to entertain the view they had on the issue. As the issue involves interpretation of legal provisions, suppression etc. cannot be alleged and extended period cannot be invoked. Both the appeals are allowed.

Summary

Issues Involved:
1. Entitlement to CENVAT credit on exported prototype vehicles without realization of export proceeds.
2. Classification of prototype vehicles as excisable goods.
3. Applicability of the extended period for recovery of CENVAT credit.

Summary:

1. Entitlement to CENVAT Credit:
The appellants, engaged in manufacturing motor vehicles, exported some vehicles for testing without realizing export proceeds. The Department denied CENVAT credit on these vehicles and issued show-cause notices demanding credit recovery with interest and penalty. The appellants argued that the export of sample vehicles for testing is part of the manufacturing process and is integral to the manufacture of final products. They cited Rule 3 of the CENVAT Credit Rules, 2004, which allows credit on inputs used in manufacturing. The Tribunal found that there is no legal basis for denying CENVAT credit when goods are exported under bond, even if export proceeds are not realized. The Tribunal referenced several cases, including Repro India Ltd. and Same Deutz Fahr (India) Pvt. Ltd., which support the admissibility of CENVAT credit for goods exported without payment of duty.

2. Classification of Prototype Vehicles as Excisable Goods:
The Department contended that prototypes are not excisable goods as they are not marketable and do not qualify as final products under Section 2(d) of the Central Excise Act, 1944. The Tribunal disagreed, stating that the definition of "input" includes all goods used in the factory by the manufacturer of final products. The Tribunal emphasized that the nature of inputs is not altered even if the exported vehicles are not final products. The Tribunal also noted that the Department accepted the bonds submitted for export under Rule 19 of the Central Excise Rules, 2002, thereby acknowledging the goods as excisable.

3. Applicability of the Extended Period:
The appellants argued that there was no suppression or intent to evade duty, as they regularly filed returns and exported prototypes under bond. The Tribunal agreed, noting that the Department had previously decided the issue in favor of the appellants for a subsequent period. The Tribunal concluded that the issue involved interpretation of legal provisions, and therefore, suppression could not be alleged, making the invocation of the extended period unsustainable.

Conclusion:
The Tribunal allowed the appeals, stating that CENVAT credit cannot be denied for exported goods even if export proceeds are not realized, and testing is integral to the manufacturing process. The Tribunal also found that the extended period for recovery cannot be invoked due to the lack of suppression or intent to evade duty.