2025 (1) TMI 474 - AT - Central Excise

Eligibility of CENVAT Credit on inputs received from EOU unit of the appellant - Whether the credit availed by the appellant based on the strength of the invoices issued by the 100% EOU prior to amendment Rule 3(7)(a) of the Cenvat Credit Rules, 2004 by Notification No.22/2009 CE (NT) dated 07.09.2009 is correct or otherwise? - HELD THAT - The very same issue was considered by this Tribunal in the matter of SHREYA PETS PVT. LTD. VERSUS COMMISSIONER OF CUS. C. EX., HYDERABAD-IV 2008 (9) TMI 351 - CESTAT, BANGALORE , wherein it is held that ' Mumbai Bench has given a clear cut finding that appellants are entitled to avail 100% credit of Education Cess on the goods supplied to them by a 100% EOU in terms of the above findings. The findings given by the Commissioner (A) is not legal and proper and the same is set aside by allowing the appeal with consequential relief.' Conclusion - Rule 3(7)(a) of the Cenvat Credit Rules, 2004, restricts the availment of credit only for the basic excise duty and does not extend to other duties such as Education Cess and Secondary Higher Education Cess. The appellant is eligible for the CENVAT Credit and the appeal is sustainable. Appeal allowed.

1. ISSUES PRESENTED and CONSIDERED

The core legal issue presented in this case is whether the appellant is eligible for CENVAT Credit on inputs received from a 100% Export Oriented Unit (EOU) under the Cenvat Credit Rules, 2004, particularly in light of amendments to Rule 3(7)(a) and the applicability of certain notifications and duties.

2. ISSUE-WISE DETAILED ANALYSIS

Relevant Legal Framework and Precedents:

The legal framework revolves around the Cenvat Credit Rules, 2004, specifically Rule 3(7)(a), which governs the availment of CENVAT Credit on inputs received from EOUs. The rule was amended by Notification No. 22/2009 CE (NT) dated 07.09.2009, which plays a crucial role in this case. The appellant also referenced prior decisions, including those in Encure Pharmaceuticals Ltd., Shreya Pets Ltd., and Tyche Industries Ltd., which addressed similar issues regarding the availment of credit on duties other than the basic excise duty.

Court's Interpretation and Reasoning:

The Tribunal focused on whether the appellant's availing of CENVAT Credit was in accordance with Rule 3(7)(a) before its amendment. The Tribunal noted that the rule restricts the availment of credit to the formula specified therein for basic excise duty but does not explicitly cover other duties such as Education Cess and Secondary Higher Education Cess. The Tribunal also considered the appellant's argument that the legislative intent was not to restrict the credit of these additional duties.

Key Evidence and Findings:

The Tribunal acknowledged that the appellant had availed credit based on invoices issued by the EOU, which had cleared goods by availing benefits under certain notifications. The Tribunal found no dispute regarding the proper payment of duty by the EOU, as evidenced by the invoices.

Application of Law to Facts:

The Tribunal applied the legal principles from prior cases, particularly the interpretation that Rule 3(7)(a) restricts only the basic excise duty credit and not other duties. It found that the appellant was entitled to avail full credit of Education Cess and other duties paid by the EOU, as these were not explicitly restricted by the rule.

Treatment of Competing Arguments:

The Tribunal considered arguments from both the appellant and the respondent. The appellant argued that the restrictive formula under Rule 3(7)(a) should not apply to duties other than the basic excise duty, supported by prior Tribunal decisions. The respondent maintained that the appellant was not eligible for the credit as per the adjudication authority's findings. The Tribunal favored the appellant's interpretation, supported by precedent cases.

Conclusions:

The Tribunal concluded that the appellant was eligible for the CENVAT Credit on the inputs received from the EOU, including the Education Cess and other duties, as these were not covered by the restrictive formula under Rule 3(7)(a).

3. SIGNIFICANT HOLDINGS

Preserve Verbatim Quotes of Crucial Legal Reasoning:

"Rule 3(1) allows a manufacturer to take credit of specified duties paid on inputs or capital goods or input services and Rule 3(4) allows a manufacturer to utilise such credit for payment of excise duty on final product or service tax on output service. However, an exception has been carved out in respect of inputs supplied by an EOU, where the availment of credit is restricted to the formula specified under Rule 3(7)(a) only in respect of basic excise duty levied under Section 3 of the Central Excise Act."

Core Principles Established:

The Tribunal reaffirmed the principle that Rule 3(7)(a) of the Cenvat Credit Rules, 2004, restricts the availment of credit only for the basic excise duty and does not extend to other duties such as Education Cess and Secondary Higher Education Cess. It emphasized the importance of legislative intent and the specific language used in statutory provisions.

Final Determinations on Each Issue:

The Tribunal determined that the appellant was eligible for the CENVAT Credit on inputs received from the EOU, including the Education Cess and other duties, as these were not restricted by the amended Rule 3(7)(a). The appeal was allowed with consequential relief in accordance with the law.

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