2025 (1) TMI 733 - HC - Central Excise

Debonding from an Export Oriented Unit (EOU) scheme - insistence by the respondent authorities on payment of excise duty in cash, instead of utilizing Cenvat credit - whether the petitioners can be permitted to pay an amount equal to the excise duty leviable on the goods lying with the petitioners at the manufacturing plant proposed to be debonded, from the Cenvat credit account of the company? - HELD THAT - Partial debonding of an unit from the existing EOU is permissible under EOU Scheme, inasmuch as, there is no bar to such debonding, that has been brought to the notice of this Court. In case of Eicher Motors Ltd. 1999 (1) TMI 34 - SUPREME COURT , it has been held by the Hon ble Supreme Court that ' a right accrued to the assessee on the date when they paid the tax on the raw materials or the inputs and that right would continue until the facility available thereto gets worked out or until those goods existed. Therefore, it becomes clear that Section 37 of the Act does not enable the authorities concerned to make a rule which is impugned herein and, therefore, we may have no hesitation to hold that the Rule cannot be applied to the goods manufactured prior to 16-3-1995 on which duty had been paid and credit facility thereto has been availed of for the purpose of manufacture of further goods.' Rule 3(4) of the Cenvat Credit Rules was an enabling provision for utilization of Cenvat credit. This Court has held in CCE Vs. Shilpa Copper Wire Industries 2010 (2) TMI 711 - GUJARAT HIGH COURT that there is no difference between 100% export oriented unit and a normal DTA Unit as regards the Cenvat scheme. In view of the provision of Section 142 (6) (a) of GST Act, also the petitioners will not be liable to pay the amount of excise duty in cash and would be entitled for refund of the outstanding credit in cash as per the aforesaid provisions. It will be seen on plain reading of section that any amount of credit found to be admissible to the claimant shall be refunded to him in cash . Therefore, there can be no arguments to the contrary that the legitimately availed Cenvat credit could not be used for the payment of duties and therefore, the demand of the respondents to pay the excise duty on goods that would be manufactured in the concerned manufacturer plant of the petitioner -company after debonding has to be rejected outright. Conclusion - The petitioners have made out a strong prima facie case, inasmuch as, when similarly situated assessees have been permitted to pay the excise duty foregone from the Cenvat credit account, there is no reason as to why the petitioners should be denied such benefit. In view of the interim order dated 30.10.2015, since the No Due Certificate has been issued to the petitioners for debonding out of 100% EOU scheme upon the petitioners having been permitted to pay the excise duty forgone from the legally availed Cenvat credit account, this petition succeeds.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal issues considered in this judgment are:

• Whether the petitioner company can be permitted to pay excise duty on goods lying at the manufacturing plant proposed to be debonded from the Cenvat credit account.
• Whether the insistence by the respondent authorities on payment of excise duty in cash, instead of utilizing Cenvat credit, is legally justified.
• The applicability of precedents and legal principles regarding the utilization of Cenvat credit for payment of excise duties in the context of debonding from an Export Oriented Unit (EOU) scheme.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Payment of Excise Duty from Cenvat Credit

• Relevant Legal Framework and Precedents: The legal framework involves the Central Excise Act, 1944, Cenvat Credit Rules, 2004, and relevant notifications such as Notification No. 22/2003-CE. The case references include Eicher Motors Ltd. and Dai Ichi Karkaria Ltd., which discuss the indefeasible right to Cenvat credit.
• Court's Interpretation and Reasoning: The court interpreted that the petitioner, as an EOU, steps into the shoes of the original manufacturer and is entitled to utilize Cenvat credit for discharging excise duty liabilities. The court emphasized that similar benefits have been extended to other EOUs, establishing a precedent for parity in treatment.
• Key Evidence and Findings: The petitioner presented evidence of other EOUs being allowed to utilize Cenvat credit for similar debonding scenarios. The court found no legal basis for the respondent's insistence on cash payment.
• Application of Law to Facts: The court applied the principles from previous judgments, affirming that the petitioner has a right to use Cenvat credit for excise duty payments, aligning with the established legal framework and precedents.
• Treatment of Competing Arguments: The respondent argued that the petitioners should pay in cash due to the nature of the debonding process. However, the court found these arguments unconvincing, given the established practices and legal provisions.
• Conclusions: The court concluded that the petitioner is entitled to discharge its excise duty liabilities from the Cenvat credit account, rejecting the respondent's demand for cash payment.

3. SIGNIFICANT HOLDINGS

• Preserve Verbatim Quotes of Crucial Legal Reasoning: The court stated, "Thus, on the ground of parity alone, the petitioners have made out a strong prima facie case, inasmuch as, when similarly situated assessees have been permitted to pay the excise duty foregone from the Cenvat credit account, there is no reason as to why the petitioners should be denied such benefit."
• Core Principles Established: The judgment reinforces the principle that EOUs are entitled to utilize Cenvat credit for paying excise duties, aligning with the treatment of similar entities and maintaining consistency in the application of tax laws.
• Final Determinations on Each Issue: The court ruled that the petitioner company can pay excise duty from the Cenvat credit account, quashing the respondent's directions to pay in cash. The court made the rule absolute to this extent, ensuring no additional costs are imposed on the petitioner.