2014 (10) TMI 675 - AT - Central Excise

Simultaneous availment of exemption Notification and CENVAT Credit - Notification No. 46/2003-CE dated 17/05/2003 - Held that - Notification No. 46/2003-CE dated 17/05/2003 grants exemption from National Calamity Contingent Duty (NCCD) on goods falling under 54.02, if they are manufactured from goods falling under same heading 54.02. The purpose of exemption is that there is no double levy of duty (NCCD) on goods falling under 54.02 both at the stage of POY as well as at the stage of texturised yarn and the duty liability has to be discharged only once, either at the stage of POY or at the stage of texturised yarn. Therefore, once the exemption is availed, the question of taking any credit once again on the POY captively consumed and utilizing the same elsewhere would not arise. Though there is no one to one co-relation required between the input and output, explanation to sub-rule (7) makes it abundantly clear that if there is a conflict between the provisions of this rule and provisions of notification, the provisions of notification shall prevail. Simultaneous availment of duty exemption and benefit of cenvat credit militates against the very object of NCCD levy and would lead to huge leakages in revenue. Therefore, the impugned order is not sustainable in law. Accordingly we set aside the same and hold that the appellant is liable to reverse the credit taken along with interest thereon as correctly held in the adjudicating authority s order. However, since the issue relates to interpretation of law, imposition of penalty is not warranted. Accordingly, we set aside the penalty imposed - Decided partly in favour of Revenue.

Issues Involved:

1. Denial of Cenvat Credit of National Calamity Contingent Duty (NCCD) on Partially Oriented Polyester Yarn (POY) captively consumed in the manufacture of Texturised Yarn.
2. Simultaneous claim of exemption under Notification No. 46/2003-CE and taking credit of duty paid on POY.
3. Utilization of NCCD credit for payment of duty on POY cleared as such.
4. Interpretation of Rule 3 of the Cenvat Credit Rules and its sub-rule (7).
5. Applicability of precedents and case laws cited by the respondent.

Detailed Analysis:

1. Denial of Cenvat Credit of NCCD on POY:
The adjudicating authority initially denied the Cenvat Credit of NCCD amounting to Rs. 2,30,30,843/- taken on POY captively consumed by the respondent. The lower appellate authority set aside this demand, concluding that DTY and FDY are not fully exempted goods as they are liable to Basic Excise Duty (BED) and Special Excise Duty (SED). Therefore, the credit taken on NCCD was deemed permissible. However, the Revenue contended that the respondent could not simultaneously claim exemption under Notification No. 46/2003-CE and take credit of the duty paid on POY captively consumed, as this would amount to availing double benefits.

2. Simultaneous Claim of Exemption and Taking Credit:
The Revenue argued that as per Rule 3 (1) of the Cenvat Credit Rules, the credit of NCCD can only be utilized for the payment of NCCD on the finished products manufactured from the inputs. Since the respondent availed the benefit of duty exemption from NCCD under Notification No. 46/2003, they could not have taken credit and utilized it for payment of duty on POY cleared as such. This would result in recycling inadmissible credit, thereby availing double benefits.

3. Utilization of NCCD Credit for Payment of Duty on POY:
The respondent argued that there is no requirement for a one-to-one correlation between input and output under the Cenvat Credit Rules, and thus, utilization of credit for payment of NCCD on goods cleared as such is permissible. They relied on various Tribunal decisions to support their contention. However, the Tribunal found that the facts in the cited cases were distinguishable and not applicable to the present case.

4. Interpretation of Rule 3 of the Cenvat Credit Rules:
Rule 3 of the Cenvat Credit Rules allows for taking and utilizing Cenvat Credit, including NCCD. However, sub-rule (7) restricts the utilization of NCCD credit to the payment of NCCD on final products or inputs removed as such. The Tribunal noted that the explanation to sub-rule (7) clarifies that if there is a conflict between the provisions of the rule and a notification, the provisions of the notification shall prevail. Therefore, once the exemption under Notification No. 46/2003 is availed, the question of taking credit on the POY captively consumed and utilizing it elsewhere does not arise.

5. Applicability of Precedents and Case Laws:
The Tribunal examined the precedents cited by the respondent, including cases like CCE, Vapi Vs. Silvasa Industries Pvt. Ltd., SRF Ltd. Vs. CCE, Chennai, Modern Petrofils Vs. CCE, Vadodara, and Mahindra & Mahindra Ltd., Vs. CCE, Mumbai. It concluded that these cases were distinguishable and not applicable to the present facts. The Tribunal emphasized that simultaneous availment of duty exemption and Cenvat Credit would lead to double benefits, which is against the object of the NCCD levy and would result in revenue leakage.

Conclusion:
The Tribunal set aside the lower appellate authority's order, holding that the appellant is liable to reverse the credit taken along with interest. However, it waived the penalty imposed, considering the issue related to the interpretation of law. The appeal was thus partly allowed.

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