2024 (6) TMI 1108 - HC - Central Excise

CENVAT Credit - duty paid on input materials and input services are used both in or in relation to the manufacture of dutiable and exempted goods respectively - correctness of switching the options from Rule 6(3)(i) to 6(3)(ii) of the Cenvat Credit Rules, 2004 in the same financial year 2008-2009 despite Explanation-I to the Rule 6(3) of Cenvat Credit Rules, 2004 which prohibits the switching of option in the same financial year - error in not considering the exercise of option under Rule 6(3)(i) of Cenvat Credit Rules, 2004 by M/s Tata Steel Limited as they have self-assessed their tax liability in statutory Returns ER-1. HELD THAT - The restriction provided under Explanation-I of not being able to withdraw the option during the remaining part of the financial year can arise only when a manufacturer has exercised such option with due intimation to the jurisdictional Central Excise authority. This is evident from Rule 6(3A)(a) of the CENVAT Credit Rules itself, inasmuch as, this provision specifically requires that while exercising the option to pay in terms of Rule 6(3)(ii) of the CENVAT Credit Rules a manufacturer has to provide/intimate in writing to the Range Superintendent the particulars as detailed in the said sub-clause (a) of Rule 6(3A). The particulars detailed in the said sub-clause (a) of Rule 6(3A) of the CENVAT Credit Rules includes intimation of the date from which the option is being exercised or is proposed to be exercised. As a matter of fact, the requirement under Rule 6(3A)(a)(ii) of the CENVAT Credit Rules in clear terms indicate that a manufacturer can opt for the option under Rule 6(3)(ii) of the CENVAT Credit Rules at any point of time during a financial year, upon intimation to the Range Superintendent. Once such option is exercised by a manufacturer, the restriction as provided in Explanation-I of Rule 6(3) would become applicable and the manufacturer cannot withdraw from such option during the remaining part of the financial year - The correspondence on record of the Assessee with Range Superintendent exchanged during the period May 2008 to June 2008, clearly establishes that the Assessee had never exercised at any point of time during the period 2008-09 the option in terms of Rule 6(3)(i) of the CENVAT Credit Rules prior to May 2008. There are no hesitation in holding that the Commissioner has erred in holding that it is on record that the Assessee had exercised the option under Rule 6(3)(i) of the CENVAT Credit Rules in the instant case. There is no document disclosed either in the show cause notice or in the OIO which evidences exercising of such option by the Assessee - Further, exercising an option is a positive act and cannot be inferred as has been sought to be done by the Commissioner. The learned Tribunal has not committed any error and had rightly allowed the appeal of the Assessee and quashed the Order-in-Original - Appeal dismissed.

Summary

Issues Involved:
1. Whether the respondent-assessee could switch options from Rule 6(3)(i) to Rule 6(3)(ii) of the CENVAT Credit Rules, 2004 within the same financial year.
2. Whether the self-assessment by the respondent-assessee in their ER-1 Returns from April 2008 to August 2008 constituted an exercise of the option under Rule 6(3)(i) of the CENVAT Credit Rules, 2004.

Detailed Analysis:

Issue 1: Switching Options Under CENVAT Credit Rules
The core issue was whether the respondent-assessee could switch options from Rule 6(3)(i) to Rule 6(3)(ii) within the same financial year, despite the prohibition in Explanation-I of Rule 6(3) of the CENVAT Credit Rules, 2004. The relevant legal text states that once an option is chosen, it cannot be withdrawn during the remaining part of the financial year. The court found that the restriction of not being able to withdraw the option during the financial year applies only when the option has been exercised with due intimation to the jurisdictional Central Excise authority, as per Rule 6(3A)(a). The respondent-assessee had submitted the required intimation on May 29, 2008, opting for Rule 6(3)(ii) and indicated that they would adjust payments accordingly. The court held that the respondent-assessee had not exercised the option under Rule 6(3)(i) prior to this intimation, thus allowing the switch to Rule 6(3)(ii).

Issue 2: Self-Assessment and Exercise of Option
The appellant-revenue argued that the respondent-assessee's self-assessment in their ER-1 Returns from April 2008 to August 2008, where they reversed 10% of the value of exempted goods, constituted an exercise of the option under Rule 6(3)(i). The court noted that there is no specific provision requiring intimation to the Central Excise authority for exercising the option under Rule 6(3)(i). However, it emphasized that a harmonious construction of the rules implies that such an option must also be intimated to the jurisdictional authority. The court found no evidence that the respondent-assessee had exercised the option under Rule 6(3)(i) before May 2008, as there was no documented intimation to the Central Excise authority. Consequently, the court concluded that the respondent-assessee had not exercised the option under Rule 6(3)(i) and had correctly opted for Rule 6(3)(ii) with due intimation.

Conclusion:
The court upheld the decision of the learned Tribunal, which had allowed the appeal of the respondent-assessee and quashed the Order-in-Original. The substantial questions of law were decided against the revenue, leading to the dismissal of the appeal. The court concluded that the respondent-assessee's actions were in compliance with the CENVAT Credit Rules, and there was no error in the Tribunal's judgment.