2025 (1) TMI 732 - HC - Central Excise

CENVAT Credit availed by the petitioners under N/N. 29/2004-CE - petitioners simultaneously operated under N/N. 30/2004-CE - lapsing of credit availed under N/N. 29/2004 - rejection of rebate claim - HELD THAT - A conjoint interpretation of the provisions of law makes it clear that Rule 11 (3) (ii) of the Cenvat Credit Rules, 2004 is attracted only if there is an absolute exemption Notification No. 30/2004 is clearly a conditional exemptional notification and thus, a harmonious reading of the aforesaid provision and Notification No. 30/2004 will make it clear that the said Notification No. 30/2004 does not attract the provisions of Rule 11 (3) (ii) Cenvat Credit Rules, 2004. The respondents authorities have placed unnecessary reliance on Rule 11 (3) (ii) of Cenvat Credit Rule, 2004 which was introduced vide Notification No. 10/2007 dated 1.3.2007 which could be said to be applicable only in cases of absolute exemption granted by a Notification under Section 5A of the Central Excise Act, 1944. The said Rule 11 (3) (ii)) can not be said to be applicable to Notification Nos. 29/2004-CE and 30/2004-CE. This is clear from the plain use of the words exempted absolutely in the said sub-rule. The accumulated credit was due to the fact that the petitioners had cleared their final product by paying central excise duty @ 8% and had simultaneously availed Cenvat credit on the raw materials used as inputs @ 16% under Notification No. 29/2004 . For the first time, as on 8.3.2006, the petitioners had reversed the Cenvat credit involved in the closing stock of inputs, finish product and yarn westage and balance amount of Cenvat credit was carrried forward. Thus, the petitioners had rightly carried forward its Cenvat credit balance. Further, since Rule 11 (3)(ii) of Cenvat Credit Rules, 2004 was introduced vide Notification No. 10/2007 dated 1.3.2007, and Notification No. 30/2004 does not provide that unutilized credit is prohibited from being carried forward, there could be no question of lapse of credit lying as balance in the Cenvat credit account of the petitioners in the month of April, 2007. Conclusion - CENVAT credit, once validly availed, does not lapse unless explicitly provided by law. Appellant are entitled to the rebate claims with interest. The impugned order dated 14.12.2020 passed by the respondent No. 4 is hereby quashed and set aside. Consequently the respondents are directed to sanction and pay the rebate claims @ 12% per annum from 10.7.2013 (date of filing the rebate claims) till the date of actual payment - Petition allowed.

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Gujarat High Court in this judgment were:

Whether the CENVAT credit availed by the petitioners under Notification No. 29/2004-CE could lapse under Rule 11(3)(ii) of the CENVAT Credit Rules, 2004, when the petitioners simultaneously operated under Notification No. 30/2004-CE.
Whether the petitioners were entitled to rebate claims for the duty paid on exported goods using the CENVAT credit balance.
Whether the impugned order by the Revision Authority rejecting the rebate claims was legally sustainable.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Lapse of CENVAT Credit

Relevant Legal Framework and Precedents: The legal framework involved the interpretation of Rule 11(3)(ii) of the CENVAT Credit Rules, 2004, and its applicability to Notification Nos. 29/2004-CE and 30/2004-CE. Key precedents included the Supreme Court's decisions in Eicher Motors Ltd. and Dai Ichi Karkaria Ltd., which emphasized that legally availed credit does not lapse unless specifically provided by law.
Court's Interpretation and Reasoning: The court reasoned that Rule 11(3)(ii) applies only to cases of absolute exemption. Notification No. 30/2004-CE was deemed a conditional exemption, allowing simultaneous operation with Notification No. 29/2004-CE, thus not triggering a lapse of credit.
Key Evidence and Findings: The court noted that the petitioners maintained separate records for operations under both notifications and that the credit balance was a result of the differential duty rates on inputs and final products.
Application of Law to Facts: The court applied the principle that legally availed credit is indefeasible and found that the petitioners' credit did not lapse, as there was no absolute exemption involved.
Treatment of Competing Arguments: The court dismissed the Department's argument that the credit should lapse under Rule 11(3), emphasizing the conditional nature of Notification No. 30/2004-CE.
Conclusions: The court concluded that the CENVAT credit availed under Notification No. 29/2004-CE did not lapse and was available for paying duties on exported goods.

Issue 2: Entitlement to Rebate Claims

Relevant Legal Framework and Precedents: The court considered Rule 18 of the Central Excise Rules, 2002, which allows rebate of duty paid on exported goods, and the procedural requirements for claiming such rebates.
Court's Interpretation and Reasoning: The court found that the petitioners complied with the procedural requirements and that the duty was indeed paid from the CENVAT credit, which was not subject to lapse.
Key Evidence and Findings: The court relied on the petitioners' documentation and the absence of any objections during prior audits to support the legitimacy of the rebate claims.
Application of Law to Facts: The court applied the rebate provisions, confirming that the petitioners were entitled to the claimed rebates as the duty was paid and the goods were exported.
Treatment of Competing Arguments: The court rejected the Department's position that the rebate claims were invalid due to the alleged lapse of credit, reiterating the credit's validity.
Conclusions: The court held that the petitioners were entitled to the rebate claims with interest, as the duty was paid from validly availed CENVAT credit.

Issue 3: Legality of the Revision Authority's Order

Relevant Legal Framework and Precedents: The court reviewed the procedural and substantive correctness of the Revision Authority's order under the Central Excise Act and related rules.
Court's Interpretation and Reasoning: The court found that the Revision Authority's order was based on a misinterpretation of the applicable rules and notifications.
Key Evidence and Findings: The court highlighted the Revision Authority's failure to consider the conditional nature of Notification No. 30/2004-CE and the petitioners' compliance with rebate procedures.
Application of Law to Facts: The court applied the correct interpretation of the rules to the facts, finding the Revision Authority's decision legally unsustainable.
Treatment of Competing Arguments: The court addressed the Department's arguments but found them inconsistent with established legal principles and precedents.
Conclusions: The court quashed the Revision Authority's order, directing the respondents to process the rebate claims with interest.

3. SIGNIFICANT HOLDINGS

Preserve Verbatim Quotes of Crucial Legal Reasoning: "The law is well settled that legally availed credit lying unutilized with the manufacturer does not lapse and such credit can be utilized for payment of any kind of duty on any excisable goods."
Core Principles Established: The judgment reinforced the principle that CENVAT credit, once validly availed, does not lapse unless explicitly provided by law. It also clarified the non-applicability of Rule 11(3)(ii) to conditional exemptions.
Final Determinations on Each Issue: The court determined that the petitioners' CENVAT credit did not lapse, they were entitled to the rebate claims with interest, and the Revision Authority's order was legally flawed and thus quashed.

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