2018 (4) TMI 1165 - HC - Central Excise

Refund claim of excess credit reversed - Rule 6(3)(ii) of Cenvat Credit Rules, 2004 - Restoration of appeal before tribunal - Whether the Appellate Tribunal is justified in rejecting the refund claim on the ground that the Appellants have correctly reversed cenvat credit in terms of Rule 6(3)(ii) of Cenvat Credit Rules, 2004 inspite of the fact that the Appellants had never opted for any option provided in the rule and followed the procedure prescribed under Rule 6(3)(ii) read with Rule 6(3)(A) of CCR 2004? Held that - The very fact that this credit was reversed, is an option exercised ipso facto. Hence, the reversal was correct. The question of excess duty having been reversed does not arise. The Adjudicating Authority does not have to produce any evidence. Relying upon Explanation 1 to Rule 6(3), the order of the Adjudicating Authority was maintained. The Tribunal was expected, as the last fact finding authority, to render specific finding. We do not think that the case could have been disposed of even if the revenue involved was not substantial, by a mere endorsement of the Appellate Authority s finding, particularly on the interpretation of the Rule prevailing at the relevant time. The Tribunal is not expected to endorse legal findings by the Adjudicating Body/Authority and that of the First Appellate Authority. Since the Tribunal comprises of both a Judicial Official and an Administrative Member, it is expected to apply its independent mind and particularly on the question/issue of interpretation of the Rule. This has precisely not been done in the instant case. Appeal of the assessee restored to the file of the Tribunal for a decision afresh on merit and in accordance with law - appeal allowed.

Summary

Issues:
1. Challenge to order passed by Customs, Excise & Service Tax Appellate Tribunal
2. Substantial questions of law regarding rejection of refund claim and excess reversal of cenvat credit

Analysis:
1. The appeal challenged an order passed by the Customs, Excise & Service Tax Appellate Tribunal, raising substantial questions of law. These questions revolved around the rejection of the refund claim and the excess reversal of cenvat credit. The first issue questioned the justification of rejecting the refund claim based on the reversal of cenvat credit, even though the appellants did not opt for any option provided in the rule. The second issue focused on whether the appellants correctly reversed the cenvat credit in proportion to the molasses used in manufacturing RS & ENA, as required by Rule 6(3)(ii) of the Cenvat Credit Rules, 2004.

2. The appellants, engaged in manufacturing organic chemicals and rectified spirit, claimed cenvat credit for excise duty paid on capital goods and inputs. They used molasses as an input in manufacturing rectified spirit and extra neutral alcohol, which were either sold or used in further manufacturing processes. Due to the nature of their operations, they found it impractical to maintain separate accounts for dutiable and exempted goods, leading them to reverse cenvat credit for molasses used in exempted goods.

3. The appellants filed a refund claim seeking re-credit of excess cenvat credit reversed on exempted goods. However, the authorities rejected the claim, citing the appellants' choice to pay duty under Rule 6(3)(ii) of the Cenvat Credit Rules, 2004. The Assistant Commissioner held that the appellants could not switch options mid-year and deemed their claim for re-credit as an afterthought to derive benefits.

4. The matter proceeded to the Appellate Authority and then to the CESTAT, where the issue of exercising the option under Rule 6(3)(ii) was contested. The CESTAT endorsed the Appellate Authority's findings without independent analysis, prompting the High Court to set aside the CESTAT's order. The High Court directed the Tribunal to reevaluate the case, emphasizing the need for an independent conclusion based on merit and in accordance with the law, allowing both parties to present evidence.

5. Ultimately, the High Court allowed the appeal, quashed the CESTAT's order, and remanded the case to the Tribunal for a fresh decision. The Tribunal was instructed to render an independent conclusion, not influenced by previous findings, and to consider all materials presented by both sides, including original files if necessary. No costs were awarded in this decision.