2012 (11) TMI 244 - AT - Central Excise

CENVAT credit on Special Additional Duty of Customs - Held that - The object and purpose of levy of special additional duty under section 3(5) of the Customs Tariff Act was to provide a level playing field for domestic units. That objective will be completely negative, if the said duty is not available as credit for procurement from EOUs vis- -vis imports. The Cenvat Credit scheme is not intended to create distortions in the market place and the law also should not be interpreted in such a way so as to create a distortion. Under sub-section (1), an additional duty of customs is levied which is equal to the excise duty levied on like articles produced in India. Under sub-section (5), another additional duty of customs is levied at a rate not exceeding four per cent of the value of the imported article so as to counterbalance the sales tax/value added tax or any other charges on a like article on its sale, purchase or transportation in India. Both the levies are additional duty of customs and therefore, there is no warrant to restrict the scope of the term additional duty of customs occurring in the formula to only the additional duty leviable under sub-section (1) of section 3 and not to the additional duty leviable under sub section (5) thereof - in favour of assessee.

Summary

Issues:
- Entitlement to CENVAT credit for excise duty paid on goods procured from a 100% EOU, specifically regarding the Special Additional Duty of Customs leviable under sub-section (5) of the Section 3 of the Customs Tariff Act.

Analysis:
The judgment revolves around the entitlement of CENVAT credit for excise duty paid on goods procured from a 100% EOU, focusing on the Special Additional Duty of Customs leviable under sub-section (5) of the Section 3 of the Customs Tariff Act. The main appellant, M/s Metaclad Industries, availed CENVAT credit for excise duty paid on goods procured from a 100% EOU, which included various components such as Basic Customs duty, Additional Customs Duty, Education Cess, and more. The department contended that the appellant was not entitled to take CENVAT credit for the portion related to Special Additional Duty of Customs under sub-section (5) of the Customs Tariff Act, leading to a demand of Rs.4,09,379/- and penalties imposed on the appellants. The appeals were filed against the order-in-appeal rejecting their claims (para 2).

In the legal arguments presented, the appellant's representative highlighted Rule 3 of the CENVAT Credit Rules, 2004, specifying that credit can be availed for additional duty of customs leviable under sub-section (5) of the Section 3 of the Customs Tariff Act. The representative referred to a clarification in 2009 that supported their claim and cited precedents to strengthen their argument (para 3). On the contrary, the Revenue representative opposed the contention, emphasizing that the benefit clarified in 2009 was applicable only post that date, not for the period in question. The Revenue supported the lower authorities' findings (para 4).

The judgment delves into the economic and legal reasons for allowing the CENVAT credit. Economically, to avoid cascading effects of taxes, full credit of duties paid at previous stages should be allowed. Legally, the interpretation of the term "additional duty of customs leviable" encompasses both sub-sections (1) and (5) of Section 3 of the Customs Tariff Act. The Tribunal cited previous decisions supporting the eligibility of CENVAT credit for both types of additional duties, emphasizing the non-discriminatory nature of the CENVAT Credit scheme (para 5.1-5.5).

Ultimately, the Tribunal ruled in favor of the appellant, holding that they were entitled to the credit of all additional duties of customs paid by the EOU under Section 3 of the Customs Tariff Act, even for the period before the clarification in 2009. The appeals were allowed with consequential relief, and the stay applications were disposed of accordingly (para 6).