2018 (8) TMI 469 - AT - Central Excise

Recovery of cenvat credit - demand on the ground that the finished goods were not fully exempted from excise duty Notification No.8/2004-CE dated 21.01.2004, as amended, provided exemption only from basic excise duty, additional excise duty of Goods of Special Importance Act, 1957, but did not provide any exemption to the additional duty payable under the Finance Act, 2005 and education cess payable on such additional duty - Notification No. 8/2004-C.E., dated 21.1.2004. Held that - The Government of India had announced a special scheme of incentives in excise duty in 1999. Accordingly, Notification No.32/99 and 33/99 dated 08.07.1999, were issued by the Ministry of Finance, Department of Revenue to provide exemption from excise duty, on specified goods, manufactured in specified areas of North East. The exemption was on the excise duty payable on value addition. This exemption was given effect to by way of providing refund of the excise duty paid by the manufacturer through PLA, i.e., in cash. Under the Cenvat Credit Rules, the credit is admissible as soon as the essential conditions are specified. In the case of National Calamity Contingent Duty, it is the condition that credit of no duty, other than the credit in respect of NCCD itself can be used for payment of such duty under Rule 3(4) of the Cenvat Credit Rules, 2004 - The words exempted goods appearing in Rule 6 of the Cenvat Credit Rules are to be read and interpreted in the relevant context. It is not the correct interpretation that when a product is chargeable to different kinds of excise duties, the words exempted goods refer only to exemption from basic excise duty. The words exempted goods refer only to a situation where the goods are exempted from all kinds of excise duties in so far as Rule 6(1) of the Cenvat Credit Rules, 2004 is concerned. If the Cenvat credit is denied in respect of inputs and capital goods merely on the interpretation that basic excise duty on the finished goods is exempted, then it would lead to an anomalous situation. It is found from the records that the appellants have been depositing the entire amount of excise duty payable on the finished goods in the ESCROW account. The Cenvat Credit being a beneficial scheme, the benefit intended to the manufacturer cannot be denied. As such the appellants are entitled to take credit of the excise duty paid on inputs or capital goods. Appeal allowed - decided in favor of appellant.

Issues Involved:
1. Confirmation of demand for recovery of Cenvat credit.
2. Applicability of Rule 6(1) of the Cenvat Credit Rules, 2004.
3. Interpretation of "exempted goods".
4. Permissibility of Cenvat credit on inputs and capital goods.
5. Limitation period for invoking extended period of limitation.

Issue-Wise Detailed Analysis:

1. Confirmation of Demand for Recovery of Cenvat Credit:
The appellants, engaged in manufacturing 'Zarda Scented Tobacco' classifiable under Chapter-24, availed Cenvat credit on basic excise duty and other dues paid on inputs and capital goods. The dispute arose because the finished goods were not fully exempted from excise duty under Notification No. 8/2004-CE dated 21.01.2004, which provided exemption only from basic excise duty and additional excise duty under the Goods of Special Importance Act, 1957, but not from the additional duty under the Finance Act, 2005, and education cess on such additional duty. The Adjudicating Authority demanded the payment of Cenvat credit along with interest and imposed a penalty under Rule 15 of the Cenvat Credit Rules, 2004.

2. Applicability of Rule 6(1) of the Cenvat Credit Rules, 2004:
The appellants contended that Rule 6 of the Cenvat Credit Rules pertains to a situation where a manufacturer produces both dutiable and exempted goods. They argued that their goods were not exempted as they were chargeable to additional excise duty (AED) and education cess under the Finance Act, 2005, making Rule 6(1) inapplicable. They emphasized that Rule 6(1) should be harmoniously read with Rule 3(4) to avoid rendering it null and void, as Cenvat credit rules are beneficial legislation.

3. Interpretation of "Exempted Goods":
The Tribunal noted that "exempted goods" means excisable goods exempt from the whole of the duty of excise, including goods chargeable to a "NIL" rate of duty. The Tribunal held that the term "exempted goods" in Rule 6(1) should be interpreted in context, meaning goods exempt from all kinds of excise duties, not just basic excise duty. Denying Cenvat credit based on exemption from basic excise duty alone would lead to an anomalous situation where the manufacturer could not utilize Cenvat credit for other duties on finished goods, contrary to the Cenvat Credit scheme's intent.

4. Permissibility of Cenvat Credit on Inputs and Capital Goods:
The Tribunal observed that the Government's intention was to grant exemption in the North East by refunding excise duty or investing it there. The permissibility of Modvat/Cenvat credit has been consistent across different notifications to avoid the cascading effect of input duty. The Tribunal found that the appellants deposited the entire excise duty amount on finished goods in the ESCROW account, and thus, the benefit of Cenvat credit on inputs and capital goods should not be denied.

5. Limitation Period for Invoking Extended Period of Limitation:
The appellants argued that invoking the extended period of limitation requires elements of fraud, suppression, etc., with intent to evade payment of excise duty, which was not alleged in the show cause notice. They also contended that taking Cenvat credit was evident from monthly returns, making the department aware of their actions. The Tribunal did not explicitly address this issue in the judgment, but the overall decision favored the appellants.

Conclusion:
The Tribunal set aside the impugned orders, allowing the appeals with consequential relief, emphasizing that the appellants are entitled to take credit of excise duty paid on inputs or capital goods. The Tribunal's decision reinforced the beneficial nature of the Cenvat Credit scheme and clarified the interpretation of "exempted goods" in the context of multiple excise duties.

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