2015 (10) TMI 1970 - AT - Central Excise

Denial of CENVAT Credit - 100% EOU - DTA Clearances - procurement of goods duty free under Notification No. 1/95-C.E., dated 1-3-1995/Notification No. 22/2003-C.E., dated 31-3-2005 - Held that - C.B.E. & C. Circulars do not have the legal force of statutory Rules or Notifications nor can they alter the scope thereof. It is seen that as per Rule 3 of the Cenvat Credit Rules, 100% EOUs are fully eligible to take Cenvat credit of duty paid on inputs used in or in relation to the manufacture of final products because this rule does not make any exception as regards 100% EOUs. Notification No. 18/2004-C.E. (N.T.), dated 6-9-2004 did not in any way affect the eligibility of the EOU for taking Cenvat credit; it only allowed them the facility to pay duty either by debit to the PLA or by debit to the Cenvat credit account. Prior to 6-9-2004, the EOUs could only pay duty through the PLA, Thus, the eligibility of EOUs for taking Cenvat credit of duty paid on the inputs received is in no way related to the issuance of Notification No. 18/2004-C.E. (N.T.). - it does not necessarily mean that an EOU has to either procure all their goods duty free or procure all their goods on payment of duty. The sentence Some EOU s have to procure their raw materials on payment of duty also contained in the said para makes it clear that EOUs can procure their raw material either duty free or on payment of duty. Be that as it may, the legal position is clear that the 100% EOU s are eligible to take Cenvat credit of duty paid on the raw material procured by them for use in or in relation to the manufacture of their final product. Seen in this light the Board circular stating that the EOU s have been allowed to avail Cenvat credit can only mean that now they can utilise the same. - Decided in favour of assessee.

Summary

Issues:
1. Disallowance of Cenvat credit and imposition of penalty
2. Interpretation of Circular No. 54/2004-Cus.
3. Legal force of C.B.E. & C. Circulars
4. Eligibility of 100% EOUs for Cenvat credit
5. Interpretation of Notification No. 18/2004-C.E. (N.T.)
6. EOUs' option to procure goods duty-free or on payment of duty

Analysis:
The case involved a dispute regarding the disallowance of Cenvat credit and imposition of a penalty amounting to &8377; 1,38,59,015/- along with a penalty of &8377; 25 lakhs. The issue stemmed from the appellant being a 100% Export Oriented Unit (EOU) procuring goods duty-free under specific notifications but also procuring furnace oil on payment of duty and claiming Cenvat credit. The adjudicating authority disallowed the credit based on Circular No. 54/2004-Cus., stating that EOUs were debarred from procuring goods on payment of duty if they availed the duty-free option.

The Tribunal analyzed the legal implications of Circulars issued by the Central Board of Excise and Customs (C.B.E. & C.), emphasizing that such circulars do not have the statutory force to alter the scope of rules or notifications. It was noted that Rule 3 of the Cenvat Credit Rules did not make any exceptions for 100% EOUs, making them fully eligible to claim Cenvat credit on duty paid inputs. The issuance of Notification No. 18/2004-C.E. (N.T.) did not affect EOUs' eligibility for Cenvat credit but provided them with the flexibility to pay duty through different accounts.

The Tribunal highlighted that EOUs had the option to procure goods duty-free or on payment of duty, as per the Board circular, which did not mandate one specific method. Referring to a previous case, it was established that 100% EOUs could obtain inputs on payment of duty and claim Cenvat credit, as there was no restriction in the rules against this practice. The Tribunal concluded that EOUs were indeed eligible to take Cenvat credit on duty paid inputs used in the manufacture of final products, and the appeal was allowed in favor of the appellant.