2023 (5) TMI 1187 - AT - Central Excise

Wrong availment of input tax credit of amount paid on fully exempted goods as per Sl. No. 90 of Notification No. 04/2006-C.E. dated 01.03.2006 as amended - main contention of the Department is that payment of duty at concessional rate without availing exemption for their first clearances of 3, 500 M.T. is violative of the provisions of Explanation to sub-section (1A) of Section 5A of the Central Excise Act 1944. Whether the principal manufacturer is eligible to avail exemption as per Notification No. 04/2006-C.E. dated 01.03.2006 under Sl. No. 91 and clear the goods on concessional payment of duty? - whether it is mandatory to avail nil rate of duty as provided under Sl. No. 90 and consequently whether the appellant herein is eligible for availment of CENVAT Credit of the duty paid by the principal manufacturer? HELD THAT - In the case of M/S. KOVAI MARUTHI PAPER AND BOARDS M/S. SARASWATHI UDYOG INDIA LTD SHRI RAM CARTONS M/S. SRIVARI PACKAGING INDUSTRIES VERSUS CCE SALEM AND CCE SALEM VERSUS M/S. SARASWATHI UDYOG INDIA LTD. M/S. KOVAI MARUTHI PAPER AND BOARDS 2018 (5) TMI 474 - CESTAT CHENNAI the Chennai Bench of the Tribunal had examined whether the principal manufacturers should compulsorily avail the exemption under Sl. No. 90 of the said Notification which prescribes nil rate of duty. The Tribunal had followed the decision in the case of BALKRISHNA PAPER MILLS LTD LAXMI BOARD AND PAPER MILLS LTD COMMISSIONER OF CENTRAL EXCISE THANE-I VERSUS COMMISSIONER OF CENTRAL EXCISE THANE I AND LAXMI BOARD AND PAPER MILLS LTD 2015 (11) TMI 210 - CESTAT MUMBAI wherein it was held that an assessee cannot be forced to avail the nil rate of duty provided under Sl. No. 90 of the Notification. The Tribunal in the case of M/S. SRIPATHI PAPER BOARDS VERSUS CCE ST TIRUNELVELI 2018 (9) TMI 891 - CESTAT CHENNAI had occasion to analyse a similar issue wherein it was decided that The first condition is that the exemption is available for the clearance of first 3500 MTs and the second condition is that the exemption is not applicable to a manufacturer who avails exemption under Notification No. 8/2003-CE dated 01.03.2003. The nil rate of tax is therefore available subject to the satisfaction of both the above conditions and appeal allowed. The impugned order set aside - appeal allowed.

Summary

Issues:
The case involves the wrong availment of input tax credit by the appellant on fully exempted goods, leading to a demand of Rs.1,18,124/- under Rule 14 of the CENVAT Credit Rules, 2004.

Issue 1: Wrong availment of input tax credit
The appellant, engaged in the manufacture of safety matches, was issued a Show Cause Notice for wrong availment of input tax credit on fully exempted goods. The Department contended that the duty paid by the principal manufacturer should be considered as a deposit, making downstream units ineligible to avail input tax credit.

Issue 2: Adjudication and appeal
Upon adjudication, a demand of Rs.1,18,124/- was confirmed, and an equal penalty imposed. The appeal to the Commissioner of Central Excise (Appeals) was rejected, upholding the order but setting aside the penalty.

Issue 3: Contention of the appellant
The appellant contended that the exemption granted under the relevant Notification is not absolute, and therefore, the CENVAT Credit taken based on duty paying documents is regular.

Issue 4: Legal submissions
The appellant argued that the exemption is conditional, not mandatory, citing precedents where it was held that the principal manufacturer is not compelled to avail the nil rate of duty, thus making the duty paid eligible for CENVAT Credit.

Issue 5: Decision on eligibility for exemption
The main issue to be decided was whether the principal manufacturer is required to avail the nil rate of duty or can clear goods on concessional payment, affecting the appellant's eligibility for CENVAT Credit.

Issue 6: Precedents and decisions
The Tribunal referred to various cases where it was held that the principal manufacturer has the option to pay duty at a concessional rate without availing the nil rate of duty, allowing downstream units to avail CENVAT Credit. Based on these precedents, the impugned order was set aside, and the appeal was allowed with consequential relief.

Separate Judgment:
The judgment was delivered by the Appellate Tribunal CESTAT CHENNAI, with reference to various precedents and legal submissions, ultimately allowing the appeal and setting aside the impugned order.