2019 (8) TMI 422 - AT - Central Excise

Wrong utilization of CENVAT Credit - credit utilized towards payment of defaulted central excise duty for the earlier months - contravention of proviso to sub-rule (4) of Rule 3 of CENVAT Credit Rules, 2004 - recovery u/r 14 of CENVAT Credit Rules, 2004 - HELD THAT - The appellants have utilized the credit on the capital goods which was availed by them in February 2016 - Further, the Hon'ble High Court of Gujarat in the case of ADVANCE SURFACTANTS INDIA LTD VERSUS UNION OF INDIA 2017 (8) TMI 594 - GUJARAT HIGH COURT has held that the said proviso to sub-rule (4) of Rule 3 of CENVAT Credit Rules, 2004 is invalid and unconstitutional. The demand raised invoking proviso to sub-rule (4) of Rule 3 of CENVAT Credit Rules, 2004 cannot sustain - appeal allowed - decided in favor of appellant.

Summary

Issues:
- Contravention of proviso to sub-rule (4) of Rule 3 of CENVAT Credit Rules, 2004
- Validity of utilizing credit for payment of defaulted excise duty
- Interpretation of relevant legal provisions

Analysis:
The case involved the appellants, engaged in manufacturing newsprint reels and maplitho paper reels, who were alleged to have contravened the proviso to sub-rule (4) of Rule 3 of CENVAT Credit Rules, 2004 by wrongly utilizing credit for payment of defaulted central excise duty. The department sought recovery under Rule 14 of the Rules, leading to a Show Cause Notice, confirmed demand, interest, and penalty by the original authority and Commissioner (Appeals). The central issue revolved around whether the appellants were liable for the demand, interest, and penalty. The proviso to sub-rule (4) of Rule 3 stated the conditions for utilizing CENVAT credit for duty payment. The appellant argued that the credit availed on capital goods was eligible before February 2016, and the delay in availing did not invalidate its use for duty payment. Reference was made to a High Court judgment declaring the proviso unconstitutional, emphasizing the indefeasible nature of CENVAT credit.

The appellant's counsel contended that the credit on capital goods, though delayed in availing, was valid for duty payment and highlighted the High Court judgment's declaration of the proviso's invalidity. The judgment cited a series of decisions supporting the manufacturer's right to utilize legally availed CENVAT credit without strict correlation between inputs and final products. The judgment concluded that the demand based on the proviso was unsustainable, setting aside the impugned order and allowing the appeal with consequential relief, if any, as per law. The decision aligned with the High Court's ruling and the principles governing CENVAT credit utilization, emphasizing the manufacturer's right to utilize available credit without undue restrictions.

In summary, the judgment addressed the contentious issue of CENVAT credit utilization and the validity of demands based on the proviso to sub-rule (4) of Rule 3 of CENVAT Credit Rules, 2004. It underscored the manufacturer's right to utilize available credit without strict temporal restrictions, aligning with legal precedents and the High Court's declaration of the proviso's unconstitutionality. The decision provided clarity on the interpretation of relevant legal provisions and upheld the appellant's position, setting aside the demand and penalties imposed by the authorities.