2024 (2) TMI 193 - AT - Central Excise

Denial of Cenvat Credit - Area Based Exemption - allegation that the supplier had wrongly availed North East exemption N/N. 20/2007-CE, by paying excess duty through the mode of adopting higher value as determined under Section 4A of Central Excise Act, 1994 instead of adopting the value as under Section 4 of Central Excise Act, 1994 r/w Rule 8 of CVR 2008 - whether the credit of duty paid on Mosquito Repellent Refills procured from GCPL, Guwahati are legal and proper? - HELD THAT - Rule 12 of Cenvat Credit Rules, 2004 states that in the case of Area Based exemption notification, the credit on inputs and capital goods shall be admissible, as if no portion of the duty paid on such inputs or capital goods was exempted under the said notification. The rule carves out a special provision wherein, by Area based exemption notification, even if the duty paid by manufacturer is refunded, the Cenvat credit availed of duty paid on inputs and capital goods would be eligible. The appellant has rightly availed the Cenvat credit of the duty collected from them by the manufacturer who has availed area based exemption notification. The appellant does not have any say or control as to the method of valuation adopted by the manufacturer, who supplied the inputs to the appellant. Cenvat credit cannot be denied at the recipient s end, without any legal basis. The High Court of Madras, in the case of COMMISSIONER OF CENTRAL EXCISE, CHENNAI-I VERSUS CEGAT, CHENNAI 2005 (1) TMI 125 - HIGH COURT OF JUDICATURE AT MADRAS High Court of Judicature at Madras, had occasion to analyse a similar situation wherein, the supplier of goods was unaware of an exemption notification and paid the duty on the final product which was passed on to the assesse. The department was of the view that as the supplier is eligible for exemption, the assesse is not eligible for credit. The High Court of Madras held that if the duty has been paid on the inputs, Cenvat credit cannot be denied. In the case of BALAKRISHNA INDUSTRIES LTD. VERSUS COMMISSIONER OF C. EX., JAIPUR-I 2015 (1) TMI 938 - CESTAT NEW DELHI , the issue under consideration was whether the goods supplied to the appellant without availing the benefit of Notification No.44/2001-CE (NT)/ 26.06.2001 and consequent credit passed on to assesse was eligible or not. The Tribunal followed the decision in the case of COMMISSIONER OF CENTRAL EXCISE CUSTOMS VERSUS MDS SWITCHGEAR LTD. 2008 (8) TMI 37 - SUPREME COURT to hold that credit is eligible. The denial of credit is not justified. The demand, interest and penalties cannot sustain - Appeal allowed.

Summary

Issues Involved:
1. Eligibility of Cenvat Credit on Mosquito Repellent Refills.
2. Alleged Overvaluation by GCPL Units.
3. Applicability of Rule 12 of Cenvat Credit Rules, 2004.
4. Invocation of Extended Period of Limitation.

Summary:

1. Eligibility of Cenvat Credit on Mosquito Repellent Refills:
The appellant, M/s. E-mox Device Company, availed Cenvat credit on inputs used in manufacturing Electrical Mosquito Repellent Devices (EMD) and on Mosquito Repellent Refills received from GCPL units at Guwahati. The department alleged that GCPL at Guwahati paid excess duty on these refills by adopting higher value under Section 4A of the Central Excise Act, 1944, instead of Section 4 read with Rule 8 of the Central Excise Valuation Rules, 2000, to obtain erroneous refunds under Notification No. 20/2007-CE. Consequently, the appellant was accused of availing ineligible Cenvat credit due to the excess credit passed on by GCPL.

2. Alleged Overvaluation by GCPL Units:
The department issued a Show Cause Notice to GCPL units at Guwahati demanding recovery of Rs. 2,76,53,587/- for the period from March 2008 to December 2012, alleging suppression of facts. The appellant received these refills and used them in manufacturing combi-packs, availing Cenvat credit on the duty paid by GCPL. The appellant contended that they availed credit based on valid invoices and that the duty was indeed paid on the inputs.

3. Applicability of Rule 12 of Cenvat Credit Rules, 2004:
The appellant argued that Rule 12 of Cenvat Credit Rules, 2004, allows credit on inputs from specified areas like North-East India as if no portion of the duty was exempted. The Tribunal agreed, stating that the appellant rightly availed Cenvat credit on the duty paid by GCPL, which was collected and deposited with the government. The Tribunal emphasized that the appellant had no control over the valuation method adopted by GCPL.

4. Invocation of Extended Period of Limitation:
The appellant argued against the extended period of limitation, asserting no suppression of facts or intent to evade duty. They maintained that all transactions were disclosed in their Cenvat credit account and monthly returns. The Tribunal found no basis for invoking the extended period, noting that the appellant acted in good faith.

Conclusion:
The Tribunal concluded that the appellant legally availed Cenvat credit on the duty paid by GCPL. The denial of credit was unjustified, and the demand, interest, and penalties could not sustain. The impugned order was set aside, and the appeal was allowed with consequential reliefs.