2014 (4) TMI 646 - AT - Central Excise

Reversal of CENVAT Credit - Whether, a manufacturer of final product, who procured inputs and availed MODVAT credit thereon, was entitled to remove the inputs as such, without reversal of the credit or payment of equivalent amount of duty, to a 100% EOU under CT-3 certificate in terms of Notification No. 1/95 Held that - removal of inputs by the recipient without reversal of credit to 100% EOU does not satisfy the condition of the notification which requires direct procurement from the factory of manufacture. The Bench observed that the said condition is not a procedural condition but a substantive and needs to be fulfilled before the benefit of the notification can be extended. Ld. Advocate submits that the notification considered by the Larger Bench was 1/95-C.E. whereas the notification involved in the present proceeding is 22/2003-C.E. However, he fairly agrees that the condition involved in the past notification as also in the present notification is identical - no prima facie case in favour of the appellant and as no financial hardship stands pleaded - Following decision of LAKSHMI AUTOMATIC LOOM WORKS LTD. Versus COMMR. OF C. EX., TRICHY 2008 (10) TMI 57 - CESTAT CHENNAI - Conditional stay granted.

Summary

Issues:
1. Demand of duty on domestic manufacturer and 100% EOU with penalties.
2. Transfer of inputs from domestic unit to 100% EOU without reversal of Cenvat credit.
3. Applicability of Notification No. 22/2003-C.E.
4. Comparison with Tribunal decisions involving capital goods.
5. Interpretation of Rule 16(2) of the Central Excise Rules, 2002.
6. Argument based on Rule 3(6) and precedent decisions.

Analysis:
1. The judgment addresses two stay applications related to a domestic manufacturer and a 100% EOU, both facing demands of duty and penalties. The domestic unit transferred inputs to the EOU without reversing Cenvat credit, leading to the demand. The issue arises from the authorities' decision on the impugned order.

2. The crux of the matter involves the interpretation of Notification No. 22/2003-C.E. The notification mandates 100% EOUs to procure excisable goods directly from the factory of manufacture. Since the domestic unit did not manufacture the inputs but procured them, the benefit of the notification was denied, resulting in the demand for reversal of Cenvat credit.

3. The judgment compares the present case with Tribunal decisions involving capital goods. While citing precedents, it distinguishes between capital goods and inputs, emphasizing that the benefit of notification cannot be extended to inputs transferred without fulfilling the direct procurement condition.

4. Rule 16(2) of the Central Excise Rules, 2002 is analyzed concerning the interpretation of 'any other reason' for bringing goods back to the factory. The court clarifies that the rule applies to final products cleared after payment of duty, not to inputs cleared to another 100% EOU without reversing credit.

5. The argument based on Rule 3(6) is dismissed as the appellant did not discharge any duty liability under Rule 3(5). The court rejects the contention that inputs and capital goods should be treated similarly, emphasizing the precedence of the Larger Bench decision that inputs do not qualify for the notification benefit.

6. Ultimately, as no prima facie case is found in favor of the appellant and no financial hardship is pleaded, the court directs the deposit of the entire duty amount within eight weeks. Pre-deposit of penalties is waived subject to compliance, and recovery is stayed during the appeal's pendency, with a follow-up hearing scheduled for compliance verification.