2020 (1) TMI 580 - AT - Central Excise

Benefit of N/N. 29/2004-CE dated 9th July 2019 and N/N. 30/2004-CE dated 9th July 2019 - partial exemption in respect of goods cleared for exports - availment of CENVAT credit barred - appellants have taken the credit of benefits after a gap of 2 years alleging that the credit has to be taken immediately after the end of the quarter and not after 2 years - circular 845/3/2007-CX dated 1.2.2007 - retrospective or prospective effect of the circular - HELD THAT - The appellants have availed credit of inputs immediately after the circular 845/3/2007- CE dated 1.2.2007 by CBEC; the circular clarified that where the textile manufacturer/processor uses common inputs in a continuous manner and where it is not practicable to separate to store the inputs and to maintain records credit should not be taken initially but proportionate credit can be taken at the end of the month - The department attempts to interpret this circular to be prospective only. Such argument is not fair. The initial wordings of the circular itself say that different representations have been received from the Trade and they have been examined; even a plain reading of the circular one gets understanding the circular is trying to clarify a situation which was already existing; it does not in any way create situation and clarify for future. Another objection raised by the department is that the credit was taken belatedly in 2007; as clarified by the Board s circular in the year 2004 the appellants were not eligible to avail credit and the admissibility of the credit were both notifications are availed was clarified only in 2007 it is not understood as to how the appellants could have taken credit before 2007; moreover we are in total agreement with the appellant s contention that if the credit can be taken immediately at the end of the month, it can be taken after end the year or at the end of 2 years for that matter; the only restriction placed even under the Rule 4 (1) of the CENVAT Rules, 2004 is that credit cannot be taken before the receipt of inputs. This being the case taking credit after 2 years is not barred either by CENVAT Credit Rules or by the Circulars. Scope of SCN - HELD THAT - The only point that remains is to see whether the inputs on which credit has been taken have been actually received in the factory of the appellant ; whether they are accompanied by a duty paying document specified therein - this fundamental issue have not been challenged in the show cause notice. There is no infirmity in the action taken by the appellant - appeal allowed - decided in favor of appellant.

Summary

Issues:
Claim of partial duty exemption under notification No.29/2004-CE and total duty exemption under notification 30/2004-CE, disallowance of CENVAT credit taken by the appellants, interpretation of circulars 795/28/2004-CX, 845/3/2007-CX, retrospective application of circulars, binding nature of circulars issued by the Board, proportionate credit for common inputs, timing of availing CENVAT credit, challenge to the show cause notice.

Analysis:
The appellants were involved in the manufacture of yarn and manmade fabrics, claiming duty exemptions under notifications 29/2004-CE and 30/2004-CE. The dispute arose when the Department issued a show cause notice to disallow the CENVAT credit taken by the appellants, citing a circular regarding the timing of credit availing after the issue of circular 845/3/2007-CX dated 1.2.2007. The Order in Original confirmed the disallowance of credit and imposed penalties. The appellant argued that they did not avail CENVAT credit during the period in question and relied on circulars clarifying the necessity of maintaining separate accounts for inputs under the notifications. They contended that the circular 845/3/2007-CX allowed for taking credit proportionately at the end of the month, which they followed. The appellant also cited precedents emphasizing the retrospective application of beneficial circulars.

The appellant further relied on the Supreme Court's ruling that circulars issued by the Board are binding on the department and argued that if common inputs were used for exempted and dutiable goods, proportionate credit should be taken. They highlighted Rule 4(1) of the CENVAT Credit Rules, 2004, which allows for immediate credit on input receipt but does not mandate immediate availing. The Tribunal noted that the circular 845/3/2007-CX clarified the procedure for availing credit on common inputs and found the Department's argument for prospective application unfair. The Tribunal emphasized that the circular aimed to clarify an existing situation, not create new rules. It also agreed with the appellant that taking credit after 2 years was permissible as long as inputs were received in the factory with accompanying duty documents. Since this fundamental issue was not challenged in the show cause notice, the Tribunal found no fault in the appellant's actions and allowed the appeal with consequential relief.

In conclusion, the Tribunal's decision favored the appellant, emphasizing the retrospective application of beneficial circulars, the binding nature of Board-issued circulars, and the permissibility of availing credit proportionately for common inputs. The Tribunal found no infirmity in the appellant's actions regarding the timing of availing CENVAT credit and upheld the appeal, granting relief as per law.