2005 (2) TMI 399 - AT - Central Excise

Cenvat/Modvat - Import of capital goods with spares - EPCG Scheme - Adjudication - EXIM Policy - fulfilment of export obligation condition - exemption of duty under Notification No. 110/95 - HELD THAT - We find that there is no provisions under the Central Excise Act or the Rules which prescribes a period within which credit of duty paid on the capital goods should be entered as taken in the register maintained. The intention of the Commissioner therefore for denying this credit cannot be upheld. In fact it is found that Circular No. 199/33/96-CX. dated 23-4-1996 clarifies that time limit of six months prescribed in 2nd proviso to Rule 57G will not apply to availment of credit on capital goods under Rule 57T and these instructions have been issued by the Board in consultation with the Ministry of Law. The Tribunal in the case of Surya Prabha Mills Limited v. Commissioner of Central Excise 2002 (4) TMI 718 - CEGAT CHENNAI has held that no restriction in time limit fixed for taking credit in respect of capital goods could be found by them. The decision in the case of Surya Prabha Mills Ltd. v. CCE Coimbatore (supra) was therefore required to be followed by the Commissioner. The Commissioner s findings in this regard are therefore to be set aside. In the absence of an allegation specifically to be made in the Show Cause Notice that the demands of differential duty were to be made by reasons fraud collusion suppression of facts etc. with an intent to evade payment of duty it is not now open for the Revenue to allege and deny credit under Rule 7(1)(b). In any case the provisions as applicable on the date of receipt of capital goods when no such bar shown to exist in the relevant rules. The findings of the Commissioner do not specify the rules under which the availment of credit was prohibited under the Central Excise Rules 1944. Under these circumstances the order of the Commissioner which suffers from non application of mind also is required to be set aside and it is to be held that the provisions of Rule 7(1)(b) are not applicable in the facts and circumstances of this case. The installation and use of the capital goods was never in dispute. In fact the Assistant Commissioner has certified the installation of the capital goods and that cannot be debated and disputed at this belated stage without any material evidence to challenge that certification. The findings of the Commissioner in this regard is therefore required to be set aside. The appellants have pleaded that the impugned order traverse beyond the Show Cause Notice inasmuch as the Commissioner has held that the appellants have not mentioned anywhere in the reply during the personal hearing that the imported plant installed are in use and that the appellants have not claimed the benefit of the depreciation. A perusal of the Show Cause Notice does not reveal any such allegation as regards depreciation. The Chartered Accountant s certificate has been produced and we find therefore no reasons to uphold the order on the ground of depreciation having been claimed. The plea of the order traverse beyond the Show Cause Notice is upheld and the order is also required to be set aside on this account. Thus the order is set aside and the appeal allowed.

Issues Involved:
1. Entitlement to Modvat/Cenvat Credit on capital goods imported under the EPCG Scheme.
2. Applicability of Cenvat Credit Rules, 2002 to the case.
3. Validity of documents for claiming credit.
4. Time limit for taking credit.
5. Procedural compliance for availing credit.
6. Allegations of fraud, collusion, or wilful misstatement.
7. Use and installation of capital goods.
8. Consideration of depreciation on duty component.

Detailed Analysis:

1. Entitlement to Modvat/Cenvat Credit on capital goods imported under the EPCG Scheme:
The appellants imported capital goods under the EPCG Scheme and paid the differential duty after failing to meet the export obligations. They claimed entitlement to Cenvat Credit for the Countervailing Duty (CVD) paid. The Tribunal held that the credit was "earned" when the capital goods were received and installed in 1996, thus governed by the Credit Rules applicable at that time. The Commissioner's denial of credit based on the Cenvat Credit Rules, 2002 was found untenable.

2. Applicability of Cenvat Credit Rules, 2002 to the case:
The Tribunal found that the provisions of the Cenvat Credit Rules, 2002 did not apply as the payment of duty related back to the date of receipt and installation of the capital goods in 1995-1996. The credit should be governed by the rules applicable at that time, not by the 2002 rules.

3. Validity of documents for claiming credit:
The Tribunal held that TR6 challans are valid documents for claiming credit. The explanation to Rule 7(1)(b) of the Cenvat Credit Rules includes challans as documents evidencing payment of additional duty. The Tribunal cited precedents where credit was allowed based on TR6 challans.

4. Time limit for taking credit:
The Tribunal noted that there is no prescribed period within which credit on capital goods should be taken. The Circular No. 199/33/96-CX clarified that the six-month time limit does not apply to capital goods. The Tribunal cited cases supporting the view that credit can be taken without a time limit for capital goods.

5. Procedural compliance for availing credit:
The Tribunal held that credit cannot be denied for non-fulfilment of procedural requirements. The Commissioner's findings were set aside as they were based on procedural lapses not supported by substantive provisions or case law.

6. Allegations of fraud, collusion, or wilful misstatement:
The Tribunal found no basis for the Commissioner's finding that the appellants knew they would not meet the export obligations when applying for the EPCG Licence. The Show Cause Notice did not allege fraud, collusion, or wilful misstatement. Thus, the denial of credit under Rule 7(1)(b) was not justified.

7. Use and installation of capital goods:
The Tribunal noted that the installation and use of the capital goods were certified by the Assistant Commissioner and could not be disputed at this stage without material evidence. The Commissioner's findings on this issue were set aside.

8. Consideration of depreciation on duty component:
The Tribunal upheld the appellants' plea that the impugned order traversed beyond the Show Cause Notice by addressing depreciation, which was not alleged initially. The Chartered Accountant's certificate confirmed no depreciation was claimed on the duty component.

Conclusion:
The Tribunal set aside the Commissioner's order and allowed the appeal, affirming the appellants' entitlement to Cenvat Credit on the CVD paid for the imported capital goods under the EPCG Scheme. The procedural and documentary compliance issues raised by the Commissioner were found to be without merit.

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