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2024 (12) TMI 1452 - HC - Central ExciseOption to forego unconditional exemption to final products by virtue of N/Ns. 6/2002 dated 1.3.2002 and 6/2003 dated 1.3.2003 at the relevant time and pay duty at the Tariff rate and claim for Modvat/Cenvat credit on inputs used in the manufacture of final products - demand of Cenvat credit in a situation where the assessee has paid the duty on the final products and utilized the credit on inputs for payment of final products - amendment provided in Section 5A by inserting sub-section 1A as is clarificatory nature or in prospective. Whether the appellant could have exercised option with regard to payment of duty or to avail the exemption Notification as per Section 5A of the Central Excise Act, 1944? - HELD THAT - Once, the final product is exempted, if the appellant would not have paid any duty, there was no question of claiming any Modvat/Cenvat credit. However, in the facts of the case, the appellant has paid duty on the final products inspite of the exemption Notification being issued by the Central Government, the same was claimed as Modvat/Cenvat credit resulting into revenue neutralization - the appellant once having paid the duty is bound to get the Modvat/Cenvat credit but, for the insertion of Clause 1A by the Finance Act, 2005 which specifically declares that where an exemption under sub-section (1) in respect of any excisable goods from the whole of the duty of excise leviable thereon has been granted absolutely, the manufacturer of such excisable goods shall not pay the duty of excise on such goods. Thus, after the insertion the appellant-assessee was prohibited from payment of excise duty on the exempted excisable goods and therefore, there is no question of getting any Modvat/Cenvat credit in view of such prohibition. Whether the amendment to Section 5A by inserting sub-section 1A is clarificatory or prospective in nature? - HELD THAT - The insertion of Section 1A cannot be said to be clarificatory but, it is substantive in nature as it prohibits the assesseee from payment of duty on the exempted excisable goods. The Hon ble Apex Court in case of Commissioner of Central Excise, Pune Versus Pudumjee Pulp Paper Mills Ltd. 2006 (4) TMI 132 - SUPREME COURT observed ' it is hereby declared that where an exemption under sub-section (1) in respect of any excisable goods from the whole of the duty of excise leviable thereon has been granted absolutely, the manufacturer of such excisable goods shall not pay the duty of excise on such goods.' The insertion of Clause 1A in Section 5A of the Central Excise Act is not clarificatory in nature but, it is substantive in nature and therefore, it would be optional for the appellant to avail the exemption of the excisable goods or to pay duty on such exempted excisable goods and therefore, the tribunal was not right in upholding the order passed by the respondents demanding for Cenvat credit where, the appellant had paid the duty on the final products and utilized the credit on inputs for payment of the final products. Conclusion - It would be optional for the appellant to avail the exemption of the excisable goods or to pay duty on such exempted excisable goods and therefore, the tribunal was not right in upholding the order passed by the respondents demanding for Cenvat credit where, the appellant had paid the duty on the final products and utilized the credit on inputs for payment of the final products - the amendment provided in Section 5A by inserting Clause 1A is prospective in nature. Appeal allowed. 1. ISSUES PRESENTED and CONSIDERED The legal judgment involves the following core issues: (a) Whether the appellant had the option to forego unconditional exemption on their final products under Notification Nos. 6/2002 and 6/2003 and instead pay duty at the Tariff rate to claim Modvat/Cenvat credit on inputs used in manufacturing the final products. (b) Whether the Tribunal was correct in upholding the order demanding Cenvat credit when the appellant had paid duty on final products and utilized the credit on inputs for payment of final products. (c) Whether the amendment to Section 5A by inserting sub-section 1A is clarificatory or prospective in nature. 2. ISSUE-WISE DETAILED ANALYSIS Issue (a): Option to Forego Exemption - Legal Framework and Precedents: The appellant argued based on Section 5A of the Central Excise Act, 1944, which empowers the Central Government to grant exemptions. The appellant relied on precedents such as the Commissioner of Central Excise and Customs (A), Ahmedabad Vs. Narayan Polyplast, which held that non-availing of an exemption was optional. - Court's Interpretation and Reasoning: The court examined whether the appellant could choose to pay duty on exempted goods and claim credit. It concluded that there is no prohibition in Section 5A against ignoring the exemption and paying duty to claim credit. - Key Evidence and Findings: The appellant paid duty on exempted goods and claimed Modvat/Cenvat credit, resulting in revenue neutrality. The court found no revenue loss from this practice. - Application of Law to Facts: The court determined that the appellant could exercise the option to pay duty on exempted goods and claim credit, as the exemption notification did not mandate the availing of exemption. - Treatment of Competing Arguments: The respondent contended that the exemption was mandatory and the appellant could not claim credit after paying duty. The court disagreed, finding the appellant's actions lawful. - Conclusions: The court concluded that the appellant was entitled to choose to pay duty and claim credit, supporting the appellant's position on this issue. Issue (b): Tribunal's Decision on Cenvat Credit - Legal Framework and Precedents: The appellant challenged the Tribunal's decision, arguing it misinterpreted Section 5A (1A) as clarificatory and retrospective. - Court's Interpretation and Reasoning: The court found that the Tribunal erred in its interpretation, as the insertion of Section 5A (1A) was not clarificatory but substantive, and thus prospective. - Key Evidence and Findings: The court noted that the appellant paid duty on final products and utilized credit on inputs, which should not have been disallowed. - Application of Law to Facts: The court applied the principle that substantive amendments are prospective, allowing the appellant to claim credit. - Treatment of Competing Arguments: The respondent argued for the mandatory nature of the exemption. The court found this inconsistent with the law and precedents. - Conclusions: The court ruled in favor of the appellant, allowing the credit claim and overturning the Tribunal's decision. Issue (c): Nature of Section 5A Amendment - Legal Framework and Precedents: The court analyzed whether the amendment was clarificatory or substantive, referencing cases like Union of India Vs. Martin Lottery Agencies Ltd. - Court's Interpretation and Reasoning: The court concluded the amendment was substantive, affecting the law's application prospectively, not retrospectively. - Key Evidence and Findings: The court found no indication in the amendment's language or legislative history that it was intended to be retrospective. - Application of Law to Facts: The court applied the principle that substantive changes are prospective, impacting future conduct. - Treatment of Competing Arguments: The respondent's argument for retrospective application was rejected based on legal principles. - Conclusions: The court determined the amendment was prospective, supporting the appellant's interpretation. 3. SIGNIFICANT HOLDINGS - The court held that the appellant could choose to pay duty on exempted goods and claim Modvat/Cenvat credit, as the exemption was not mandatory. - It was determined that the Tribunal's decision was incorrect, as the appellant's claim for credit was valid under the law. - The court concluded that the amendment to Section 5A was substantive, not clarificatory, and thus applied prospectively. - The final determination was in favor of the appellant on all issues, allowing the appeal and overturning the Tribunal's decision. The appeal was allowed, with no order as to costs, affirming the appellant's right to choose between exemption and duty payment with credit claims.
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