2013 (4) TMI 532 - HC - Central Excise

Remission of duty upon destruction of final product - whether the manufacturer is required to reverse the Cenvat Credit on the inputs used in manufacturing such final product? - Held that - Cenvat is a scheme under which a manufacturer is allowed to utilize the duty paid on inputs by taking the same from the duty payable on the final product subject to certain procedures prescribed under the Rules. Thus finding substance in the contention of respondent that in a taxing statute one has to look at what is exactly or clearly stated and there is no room for ascertaining any intendment of the legislature. One must look fairly at the language used Baidyanath Ayurved Bhawan (P) ltd. v Excise Commissioner, UP 1970 (10) TMI 28 - SUPREME COURT OF INDIA Going through the provisions of the Rules relating to Cenvat as it stood in the Cenvat Credit Rules prior to September 7, 2007, there is no scope of application of equitable doctrine against the assesse and in favour of the Revenue on the ground that it will amount to conferring of double benefit. The moment sub-rule (5C) was introduced, the Legislature made its intention clear that from the date of coming into force of the said amended rule, in case of future remission on the ground mentioned in the said sub- rule, there will be reversal of the credit. As the amendment has been effected from a particular date and at the same time, prior to such amendment, there was no provision of reversal as introduced in the Rules by way of amendment under the circumstances stated therein. Thus, it is creation of a new right in favour of the Revenue and in such circumstance, in the absence of any contrary intention reflected from any of the provisions of the Statute, the amendment must be held to be prospective. Such being the position, sub-rule (5C) of the Rules is effective from September 7, 2007 and for input credited earlier, there is no scope of reversal of the credit if the finished product becomes unfit for human consumption unless any condition has been imposed for remission of duty in terms of Rule 21 of the Central Excise Rules, 2002 making it clear that the credit already taken is to be reversed.

Issues Involved:
1. Whether manufacturers are required to reverse Cenvat Credit on inputs used in the manufacture of final products when the duty on such final products is remitted due to destruction.
2. The applicability and interpretation of Rule 3 of the Cenvat Credit Rules, 2004, and Rule 21 of the Central Excise Rules, 2002.
3. The retrospective or prospective application of sub-rule (5C) of Rule 3 of the Cenvat Credit Rules introduced on September 7, 2007.

Issue-wise Detailed Analysis:

1. Requirement to Reverse Cenvat Credit:
The core issue was whether manufacturers must reverse the Cenvat Credit on inputs used in the manufacture of final products when the duty on these final products is remitted due to destruction. The Division Bench had previously held in the cases of GDN Garments and Biopac India Corporation Ltd. that manufacturers are not required to reverse the Cenvat Credit on inputs even after remission of duty on the final product due to destruction.

2. Applicability and Interpretation of Rules:
The referring Division Bench noted the need for a closer scrutiny of Rule 3 of the Cenvat Credit Rules, 2004, and Rule 21 of the Central Excise Rules, 2002. Rule 3 allows manufacturers to take credit for the duty paid on inputs used in manufacturing dutiable final products to avoid the cascading effect of excise duty. Rule 21 provides for the remission of duty on goods lost or destroyed before removal. The Division Bench observed that permitting manufacturers to retain Cenvat Credit on inputs used in destroyed final products could result in an unintended double benefit.

3. Retrospective or Prospective Application of Sub-rule (5C):
The introduction of sub-rule (5C) of Rule 3 on September 7, 2007, mandated the reversal of Cenvat Credit when duty on the final product was remitted. The Division Bench considered whether this sub-rule was clarificatory and thus applicable retrospectively. The court concluded that sub-rule (5C) was not clarificatory but a new provision, making it prospective from its introduction date. Therefore, for periods before September 7, 2007, there was no requirement to reverse Cenvat Credit unless remission of duty was granted with a specific condition to reverse the credit.

Detailed Judgment:

Background and Previous Decisions:
The Division Bench referred the matter to a larger Bench due to conflicting views in previous decisions. In GDN Garments and Biopac India Corporation Ltd., the court had ruled that manufacturers were not required to reverse Cenvat Credit on inputs used in final products destroyed by fire, as remission of duty on such products did not necessitate reversal of credit.

Arguments by Revenue:
The Revenue argued that allowing manufacturers to retain Cenvat Credit on inputs used in destroyed final products resulted in a double benefit, contrary to legislative intent. They contended that sub-rule (5C) of Rule 3, introduced on September 7, 2007, clarified this intent and should apply retrospectively to require reversal of credit even for periods before its introduction.

Arguments by Assessee:
The assessee argued that Cenvat Credit crystallized when inputs were used in manufacturing dutiable final products, irrespective of subsequent destruction and remission of duty. They maintained that sub-rule (5C) was not clarificatory but a new provision effective prospectively from September 7, 2007.

Court's Analysis:
The court examined the provisions of Rule 3 of the Cenvat Credit Rules and Rule 21 of the Central Excise Rules. It noted that prior to the introduction of sub-rule (5C), there was no provision requiring reversal of Cenvat Credit for destroyed final products. The court emphasized that tax statutes must be interpreted based on their clear language without inferring legislative intent beyond what is explicitly stated.

Conclusion:
The court held that sub-rule (5C) of Rule 3 was prospective from September 7, 2007, and did not apply to periods before its introduction. Therefore, manufacturers were not required to reverse Cenvat Credit on inputs used in final products destroyed before this date unless remission of duty was granted with a specific condition to reverse the credit.

Disposition:
The reference was answered accordingly, and the matters were directed to be placed before the appropriate Bench as per the roster.

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