2017 (12) TMI 1021 - AT - Central Excise

CENVAT credit availed on imports effected against N/N. 54/2003 - bills of entry for import of inputs on which duty liability has been discharged by debit of Duty Free Credit Entitlement (DFCE) - Held that - That there is a duty liability is not in dispute; it is the manner of payment of the duty that, in the context of entitlement to CENVAT credit, that is objected to. CENVAT Credit Rules, 2004 does not make such distinction and credit should be admissible even in the absence of a clarificatory insertion in a customs notification - Respondent is an exporter and is, thereby, entitled to a refund of taxes/duties on all inputs and it is the superfluous activity of collecting the additional duty for subsequent refund that would be the consequence of the proposition made on behalf of Revenue. Such procedural burden should not be visited lightly upon an exporter if the government is serious about promotion of exports - credit allowed - appeal dismissed - decided against Revenue.

Summary

Issues Involved:
- Determining eligibility to avail CENVAT Credit against bills of entry for import of inputs with duty liability discharged by 'Duty Free Credit Entitlement (DFCE)'
- Interpretation of notifications related to duty liability and CENVAT credit eligibility
- Impact of availment of credit when duty liability is discharged by an alternative mode

Analysis:
1. The issue in this case revolves around the eligibility of availing CENVAT Credit against bills of entry for imported inputs where duty liability was discharged using 'Duty Free Credit Entitlement (DFCE).' The Revenue challenged the rejection of their appeal against the original authority's order by the Commissioner of Central Excise & Service Tax (Appeals).

2. The respondent, a pharmaceutical company, availed CENVAT credit for additional duty paid when clearing specific items for export. The dispute arose regarding the applicability of different customs notifications for duty exemption on imports. The Revenue contended that certain imports were ineligible for credit due to the notification used, leading to a show cause notice for recovery of availed credit.

3. The original authority initially dropped the proceedings based on a circular rendering an amendment retrospective. However, the adjudicating authority was directed to appeal for denial of credit on imports under a specific notification. The first appellate authority emphasized the need for a clear prayer for disallowing credit retrospectively, ultimately affirming the lower authority's decision based on the eligibility criteria of the notifications.

4. During the proceedings, the Revenue's argument focused on the credit availed under a particular notification, limiting the scope of the appeal. The respondent's failure to rectify the incorrect citation of the notification on the bills of entry weakened their defense. The argument that notifications are procedural and not substantive was made, emphasizing the alternative mode of duty discharge provided by the notifications.

5. The key principle at stake was the impact of availing credit when duty liability is discharged through an alternative mode. The CENVAT Credit Rules do not differentiate based on the mode of duty payment, emphasizing the admissibility of credit. The absence of a clarificatory insertion in a customs notification does not preclude credit eligibility, especially when dealing with cross-border taxation matters.

6. The respondent's status as an exporter entitled to tax refunds on inputs was highlighted, questioning the necessity of collecting additional duty for subsequent refund. Imposing procedural burdens on exporters could hinder export promotion efforts, suggesting a need for a balanced approach.

7. The decision to allow credit was supported by the lower authorities, with insufficient justification provided in the appeal for overturning their findings. The importance of promoting exports and the procedural nature of the notifications were crucial factors in dismissing the Revenue's appeal.

In conclusion, the judgment upheld the eligibility of the respondent to avail CENVAT Credit against imported inputs, emphasizing the procedural nature of the customs notifications and the need to support export activities without undue procedural burdens.