2022 (9) TMI 266 - AT - Central Excise

Denial of re-credit of Cenvat credit under Notification No. 39/2001-CE dated 31.07.2001 - period April, 2008 to March, 2009 - HELD THAT - It is apparent that since the appellant was not availing Cenvat Credit, it was held that the appellant had violated the condition given in para 2A of Notification No. 39/2001-CE which mandates that the manufacturer has to first utilize whole amount of Cenvat Credit available to him on the last day of the month under consideration for payment of duty of goods cleared during such month and pays only the balance amount in cash - In the instant case, since no amount of Cenvat Credit was availed, it was held that the appellant has not utilized the Cenvat Credit available to him for payment of duty first and since the appellant has paid the entire amount of duty under PLA the appellant has violated the condition prescribed under in para 2A of Notification No. 39/2001-CE dated 31.07.2001. The claim of the appellant is that if they by choice have not availed cenvat credit, then no credit is available to the appellant, and therefore, they have complied with the restriction imposed in para 2A of the Notification 39/2001-CE. The claim of the Revenue is that if the appellant could have availed credit and have chosen not to avail the credit then the credit that appellant could have availed is to be treated as credit available to the appellant and since the appellant failed to use the credit available to the appellant, they have violated the condition prescribed in para 2A of Notification 39/2001-CE. It is apparent that the reason for introducing the restriction of full utilization of credit available is that the assessee does not misuse the exemption by taking credit and not using the same. Thereby, accumulating the credit and using it on a letter date when they get out of the notification no.39/2001-CE. It is seen that if the appellant does not take any credit then no such mal-practice can happen and no credit can be accumulated. Moreover, it also implies that the credit available would mean the Cenvat credit taken and available in the credit of Cenvat account and not the credit that the appellant could have possibly taken but did not avail. Moreover, in the instant case, since by not taking the credit the quantum of refund admissible to the appellant remains as same as it would have had the appellant taken the credit and utilized the same. The rejection of rebate claim on this ground is without any basis - appeal allowed.

Issues Involved:
1. Denial of re-credit of Cenvat credit under Notification No. 39/2001-CE.
2. Compliance with the conditions of Notification No. 39/2001-CE, specifically para 2A.
3. Requirement of issuing a Show Cause Notice and granting a hearing.
4. Interpretation of "credit available" under para 2A of Notification No. 39/2001-CE.

Issue-wise Detailed Analysis:

1. Denial of Re-credit of Cenvat Credit:
The appellant, engaged in manufacturing excisable goods under Chapter 28 and 29 of the Central Excise Tariff Act, 1995, was availing the benefits of Notification No. 39/2001-CE, which provides exemption by way of refund of duty paid on goods cleared through PLA (other than that paid using Cenvat). The appellant had exercised their option for taking credit in terms of para 2C of the notification for the year 2008-2009. However, the re-credit claims for the period April 2008 to March 2009 were rejected by the Deputy Commissioner on the grounds that the appellant did not utilize the whole of the Cenvat credit available for payment of duty first, thus violating para 2A of the notification.

2. Compliance with Para 2A of Notification No. 39/2001-CE:
Para 2A mandates that the manufacturer must first utilize the entire Cenvat credit available on the last day of the month for payment of duty on goods cleared during that month and pay only the balance amount in cash. The appellant did not avail Cenvat credit and paid the entire duty from PLA, which was deemed a violation of para 2A. The Commissioner (Appeals) and the Tribunal initially upheld this view, emphasizing that the conditions of the notification must be strictly complied with to claim the exemption benefits.

3. Requirement of Issuing a Show Cause Notice and Granting a Hearing:
The Deputy Commissioner's order was passed without issuing a Show Cause Notice or granting a hearing to the appellant. This procedural lapse was highlighted by the Tribunal, which set aside the Commissioner (Appeals) order and remanded the matter for fresh decision, emphasizing the need to follow the principles of natural justice.

4. Interpretation of "Credit Available" Under Para 2A:
The core dispute was whether the Cenvat credit, which could have been taken but was not, could be considered "credit available" to the appellant. The appellant argued that no credit was available to them as they voluntarily chose not to avail it. The Revenue contended that the credit that could have been availed should be treated as available credit, and the appellant's failure to use it violated para 2A.

The Tribunal noted that the notification aimed to prevent misuse of exemptions by ensuring that manufacturers do not accumulate Cenvat credit for future use. However, in the appellant's case, not availing the credit did not change the quantum of refund admissible, as detailed in their calculations, which were not countered by the Revenue. The Tribunal concluded that the restriction of full utilization of credit available was intended to prevent malpractices, and since the appellant did not take any credit, no such malpractice could occur. Therefore, the rejection of the rebate claim was deemed without basis.

Conclusion:
The appeals were allowed, and the Tribunal held that the rejection of the re-credit claims was unjustified, as the non-availment of Cenvat credit did not affect the quantum of refund admissible to the appellant. The decision emphasized the importance of adhering to procedural fairness and the correct interpretation of the notification's conditions.

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