2022 (10) TMI 731 - AT - Central Excise

Benefit of exemption subject to the condition that no Cenvat Credit is availed - CENVAT Credit - availment of consolidated cenvat credit by a singly entry of all the inputs used in the manufacture of Finished goods which were cleared without payment of duty under the Notification No. 30/2004-CE dated 09.07.2004 during the period April 2016 to March 2017 - reversal of credit for exempt goods - Rule 6(3) of the Cenvat Credit Rules, 2004. Whether such reversal of credit, either by payment of 6% in terms of Rule 6 or by debiting the same from the Cenvat credit account, would result to satisfying the condition of notification No. 30/2004-CE in question? HELD THAT - The condition of the notification is that no credit should have been availed in respect of inputs used in the manufacture of such goods. We find that the issue is no more res integra and stands settled by Hon ble Supreme Court in the case of CHANDRAPUR MAGNET WIRES (P) LTD. VERSUS COLLECTOR OF C. EXCISE, NAGPUR 1995 (12) TMI 72 - SUPREME COURT . It stands held that when credit so availed is subsequently reversed, the situation would be as if no credit was ever availed. This issue had come up for consideration before the Allahabad High Court in the case of HELLO MINERALS WATER (P) LTD. VERSUS UNION OF INDIA 2004 (7) TMI 98 - ALLAHABAD HIGH COURT , wherein it is held that reversal of Modvat credit amounts to non-taking of credit on the inputs. Hence, the benefit has to be given of the notification granting exemption/rate of duty on the final products since the reversal of credit on the input was done at the Tribunal s stage. The appellant are eligible for exemption under Notification No. 30/2004-C.E. when they have reversed 6% of the value of exempted goods in terms of Rule 6(3)(i). It is found that the appellant s claim on the applicability of sub-rule (3D) of Rule 6 is also legally sustainable. The said sub-rule provides for a deeming provision to the effect that payment of amount under sub-rule (3) should be considered as credit not taken for the purpose of such exemption notification. The impugned order is unsustainable, and accordingly set aside - appeal allowed - decided in favor of appellant.

Issues Involved:
1. Validity of the show cause notice issued.
2. Eligibility for the benefit of Notification No. 30/2004-CE dated 09.07.2004.
3. Reversal of Cenvat Credit and its implications.
4. Applicability of Section 11A(4) for demand confirmation.
5. Department's appeal for enhancing the penalty.

Issue-wise Detailed Analysis:

1. Validity of the Show Cause Notice:
The appellant argued that the show cause notice was "bad-in-law" as it was issued without adhering to the procedure outlined in Master Circular No. 1053/02/2017-CX dated 10.03.2017. The appellant claimed that the notice failed to provide complete facts and omitted crucial details, thus violating the principles of natural justice. The tribunal noted that the appellant had started availing the credit based on a letter from the Jurisdictional Range Officer, which was not considered in the show cause notice, and hence, the notice was indeed flawed.

2. Eligibility for the Benefit of Notification No. 30/2004-CE:
The appellant contended that they had correctly reversed the credit by paying an amount equal to 6% of the value of exempted goods as per Rule 6 of the Cenvat Credit Rules, 2004, and thus, should be eligible for the benefit of the exemption notification. The department, however, argued that the condition of the notification was that no credit should be availed on inputs. The tribunal referred to the Supreme Court's decision in Chandrapur Magnet Wires Ltd. v. C.C.E., which held that if the credit is subsequently reversed, it is as if no credit was ever availed. The tribunal concluded that the appellant had satisfied the condition of the notification by reversing the credit.

3. Reversal of Cenvat Credit and Its Implications:
The tribunal examined whether the reversal of credit, either by payment of 6% in terms of Rule 6 or by debiting the same from the Cenvat credit account, would satisfy the condition of Notification No. 30/2004-CE. Citing various judgments, including those from the Supreme Court and High Courts, the tribunal held that such reversal amounts to non-availment of credit, thereby fulfilling the condition of the exemption notification. The tribunal also noted that sub-rule (3D) of Rule 6 supports the appellant's case, deeming payment under sub-rule (3) as credit not taken for the purpose of the exemption notification.

4. Applicability of Section 11A(4) for Demand Confirmation:
The appellant argued that the demand confirmed by invoking Section 11A(4) was unwarranted as the credit was taken based on the Jurisdictional Range Officer's letter, not on their own account. They contended that there was no suppression of facts or willful misstatement. The tribunal agreed with the appellant, stating that the demand was not sustainable, and hence, the penalty under Section 11AC was also not justified.

5. Department's Appeal for Enhancing the Penalty:
The department sought to enhance the penalty imposed under Section 11AC. However, since the tribunal found the demand itself unsustainable, the penalty, being consequential, was also dismissed. The tribunal emphasized that the original authority erred in not considering sub-rule (3D) of Rule 6 and relying on the explanation of Rule 3 of the Cenvat Credit Rules, 2004.

Conclusion:
The tribunal set aside the impugned order, allowing the assessee's appeal and dismissing the department's appeal. The judgment emphasized the principle that subsequent reversal of credit should be treated as if no credit was ever taken, thereby fulfilling the conditions of the exemption notification. The tribunal also highlighted the importance of adhering to procedural norms and ensuring complete disclosure of facts in show cause notices to uphold the principles of natural justice.

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