Gujarat High Court
Messrs Dishman Pharmaceuticals And ... vs Union Of India on 18 December, 2024
Author: Bhargav D. Karia
Bench: Bhargav D. Karia
NEUTRAL CITATION
C/SCA/14949/2015 JUDGMENT DATED: 18/12/2024
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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/SPECIAL CIVIL APPLICATION NO. 14949 of 2015
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR. JUSTICE BHARGAV D. KARIA
and
HONOURABLE MR.JUSTICE D.N.RAY
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Approved for Reporting Yes No
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MESSRS DISHMAN PHARMACEUTICALS AND CHEMICALS PVT. LTD. &
ANR.
Versus
UNION OF INDIA & ANR.
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Appearance:
MR PARESH M DAVE(260) for the Petitioner(s) No. 1,2
DEEPAK N KHANCHANDANI(7781) for the Respondent(s) No. 2
RULE SERVED for the Respondent(s) No. 1
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CORAM:HONOURABLE MR. JUSTICE BHARGAV D. KARIA
and
HONOURABLE MR.JUSTICE D.N.RAY
Date : 18/12/2024
ORAL JUDGMENT
(PER : HONOURABLE MR.JUSTICE D.N.RAY)
1. Heard learned advocate Mr.P.M.dave for the petitioners and learned advocate Mr.Deepak N.Khanchandani for the respondent No.2.
2. Rule returnable forthwith. Mr.Deepak N.Khanchandani, learned advocate waives service of notice of rule on behalf of the respondent No.2. With the consent of learned advocates appearing Page 1 of 20 Uploaded by BINA SHAH(HC00353) on Wed Jan 01 2025 Downloaded on : Fri Jan 03 22:19:38 IST 2025 NEUTRAL CITATION C/SCA/14949/2015 JUDGMENT DATED: 18/12/2024 undefined for the respective parties, the matter is taken up for final hearing.
3. The brief facts of the case are as under :-
3.1 The Petitioner Company is engaged in the business of manufacturing of pharmaceutical and chemical products. The present petition concerns the factory located at village-Lodriyal in Taluka- Sanand of Ahmedabad District. The above referred factory was allowed to operate as a 100% Export Oriented Undertaking by virtue of a Letter of Permission (LOP) No.KASEZ/100% EOU/II/945/2000-01 dated 30.03.2002 issued by the office of the Development Commissioner, Kandla Special Economic Zone.
3.2. The Central Government issued a Notification under Section 5A of the Central Excise Act, 1944 read with Section 3 of the Additional Duties of Excise (GSI) Act, 1957 and Section 3 of the Additional Duties of Excise (TTA) Act, thereby exempting the goods specified in Annexure-l to the Notification from whole of the excise duty as well as additional duties when brought in connection with the manufacture and packaging of articles or job work for export goods into EOUs, subject to various conditions laid down under the Notification.
3.3 One of the conditions of the Notification is that the EOU should execute a Bond with the Deputy/Assistant Commissioner of Central Excise thereby agreeing to various undertakings, including an undertaking to pay an amount equal to the duty leviable on the Page 2 of 20 Uploaded by BINA SHAH(HC00353) on Wed Jan 01 2025 Downloaded on : Fri Jan 03 22:19:38 IST 2025 NEUTRAL CITATION C/SCA/14949/2015 JUDGMENT DATED: 18/12/2024 undefined goods and the interest in case of capital goods as well as goods other than capital goods, (i.e. inputs, raw materials, packaging materials, consumables etc.) if such goods were not proved to have been used in connection with the production or packaging of goods for export out of India. This Notification further allows an EOU to procure various inputs, raw materials etc. 3.4 By virtue of the above referred LOP and also the Bond executed by the Petitioner Company under Notification No.22/2003-
CE, the Petitioner Company had been procuring various capital goods and goods other than capital goods without payment of duty for utilizing all such goods in relation to manufacture of final products meant for export.
3.5 The office of the Development Commissioner, KASEZ has allowed the petitioner's application for partial debonding in principle, but a certificate of confirmation of discharging duties foregone on the goods lying unutilized in the petitioner's plant that was proposed to be debonded had to be obtained from the office of the Respondent No.2, and therefore such requirements were also referred to in the letters and correspondence exchanged between the parties.
3.6 The calculations about the quantity and value of capital goods as well as other goods lying in the plant proposed to be debonded and also the duties liable to be paid thereon under the scheme of Page 3 of 20 Uploaded by BINA SHAH(HC00353) on Wed Jan 01 2025 Downloaded on : Fri Jan 03 22:19:38 IST 2025 NEUTRAL CITATION C/SCA/14949/2015 JUDGMENT DATED: 18/12/2024 undefined Notification No.22/2003-CE are not under any dispute in this proceedings.
3.7. After the quantity, value and duties foregone (which were required to be discharged by the Petitioner Company) in respect of capital goods and other goods were crystallized, the Respondent No.2 asked the Petitioner Company to pay duties foregone on such goods. The Petitioner Company replied to such direction and informed the Respondent No.2 that duties of customs foregone on the imported materials shall be paid by the Petitioner Company in cash because custom duties liabilities are required to be discharged by any importer by paying duties in that manner, whereas the duties of excise foregone on the goods lying in the plant proposed to be debonded shall be discharged from legally availed Cenvat credit lying with the Petitioner Company because excise duties could be discharged by a manufacturer on the goods manufactured by him from such Cenvat credit.
3.8. Thereupon, the Respondent No.2 served upon the Petitioner Company a letter dated 3.8.2015 referring to Rule 3(4) of the Cenvat Credit Rules and asked the Petitioner Company to pay amount equal to excise duty on the depreciated value of capital goods and also on the value of other goods like inputs and packaging materials in cash, and not from Cenvat account; and the Respondent No.2 also informed the Petitioner Company that the duties so paid could be Page 4 of 20 Uploaded by BINA SHAH(HC00353) on Wed Jan 01 2025 Downloaded on : Fri Jan 03 22:19:38 IST 2025 NEUTRAL CITATION C/SCA/14949/2015 JUDGMENT DATED: 18/12/2024 undefined availed as Cenvat credit by the Petitioner Company.
3.9. The Petitioner Company replied to the Respondent No.2 by correspondence dated 12.8.2015 pointing out that an EOU procuring goods duty free from domestic manufacturers stepped into the shoes of such manufacturer, and therefore when the EOU was required to pay excise duty on such goods in eventualities like debonding, the EOU could discharge such duty liability in the same manner which was permissible to the manufacturer of such goods for discharging duty liability. Whereas in case of imported goods, the EOU was required to pay custom duties in the same manner (i.e. cash) that had to be adopted by an importer.
3.10 The petitioners have also brought to the notice of the respondent Excise authorities specific cases of debonding permitted to EOUs belonging to manufacturers like M/s. Alps Chemicals Pvt. Ltd. of Vatva, Ahmedabad, M/s. AIA Engineering Ltd., Odhav, Ahmedabad and also M/s. Harsha Engineering Ltd., where such payments were allowed from legally availed Cenvat credit.
3.11 The Assistant Commissioner has referred to Clause (i) of Notification No.46/2004-CE but this clause only lays down that debonding of capital goods may be allowed on payment of an amount equal to excise duty leviable on such goods on the depreciated value at the rate in force on the date of debonding; and Page 5 of 20 Uploaded by BINA SHAH(HC00353) on Wed Jan 01 2025 Downloaded on : Fri Jan 03 22:19:38 IST 2025 NEUTRAL CITATION C/SCA/14949/2015 JUDGMENT DATED: 18/12/2024 undefined thus it is nowhere laid down under this provision that payment of amount equal to excise duty leviable on such goods has to be made in cash, and not by utilizing legally availed Cenvat credit. By referring to para 8 of Notification No.22/2003-CE wherein it is laid down that debonding of capital goods may be allowed on payment of an amount equal to the excise duty on the depreciated value thereof at the rate in force on the date of debonding;
3.12 The Respondent No.2 failed to appreciate the provisions of the EOU scheme and that of Notification No.22/2003-CE, and therefore his insistence and direction for payment of excise duty leviable on the goods procured by the Petitioner Company duty free in cash is wholly illegal and without jurisdiction. EOU is a manufacturer that steps into the shoes of the original manufacturer of the goods who supplied all such goods to an EOU without payment of duty by virtue of the scheme of Notification No.22/2003-CE and the bond executed by the concerned EOU thereby taking upon itself all the liabilities and obligations of the original manufacturer if the goods procured duty free were not utilized for the intended purpose.
3.13. The petitioners further submitted that they had with them an accumulated Cenvat credit of Rs.10,94,81,581/- which had been availed on procurement of various goods on payment of duties. There is no dispute about legal availment of Cenvat credit to the above extent, and it is an admitted fact that the Petitioner Company Page 6 of 20 Uploaded by BINA SHAH(HC00353) on Wed Jan 01 2025 Downloaded on : Fri Jan 03 22:19:38 IST 2025 NEUTRAL CITATION C/SCA/14949/2015 JUDGMENT DATED: 18/12/2024 undefined has the Cenvat credit to the tune of Rs.10,94,81,581/- at its disposal. Insisting on payment of excise duty leviable on the goods in question aggregating to Rs. 61,46.661/- in cash would result in a situation where the Petitioner Company would have to shell out the above amount from its working capital, and Cenvat credit of equal amount would accrue in the petitioner's favour thereby swelling the Cenvat balance lying with the Petitioner Company. Thus, the petitioner -Company would suffer liquidity crunch on one hand if the above amount of Rs.61,46,661/- is paid in cash, whereas such amount would remain as idle Cenvat credit with the petitioner- Company on the other hand; and thus a serious prejudice of financial difficulty and liquidity crunch would be caused to the petitioners if the direction of the Respondent No.2 for payment of duty leviable on the goods in question in cash is not set right.
3.14 The Petitioners therefore submit that the action of the Respondent No.2 had caused irreparable injury and loss to the petitioners, and the balance of convenience is also in favour of the Petitioners in this case. Therefore, appropriate orders, directions or writ may be issued by this Hon'ble Court so as to set right the above referred situation that has occurred in the present case.
4. This petition is thus filed under Article 226 of the Constitution of India with a prayer to quash and set aside the direction to pay excise duty in cash conveyed by the respondent No.2 vide letters No. F.No.VIII/48-08/Cus/Dishman/13-14 dated Page 7 of 20 Uploaded by BINA SHAH(HC00353) on Wed Jan 01 2025 Downloaded on : Fri Jan 03 22:19:38 IST 2025 NEUTRAL CITATION C/SCA/14949/2015 JUDGMENT DATED: 18/12/2024 undefined 3.8.2015 and 19.8.2015 thereby, allowing the petitioner -Company to pay such excise duty from legally availed Cenvat credit. Accordingly, the following prayers have been made :-
"(A) That Your Lordships may be pleased to issue a Writ of Certiorari or any other appropriate writ, direction or order.
quashing and setting aside the direction to pay excise duty in cash conveyed by the Respondent No.2 herein vide letters F.No.VIII/48-08/Cus/Dishman/13-14 dated 3.8.2015 and 19.8.2015 (Annexures-"F" and "I") thereby allowing the Petitioner Company to pay such excise duty from legally availed Cenvat credit:
(B) That Your Lordships may be pleased to issue a Writ of Mandamus or a Writ in the nature of Mandamus or any other appropriate writ, or order, directing the Respondent No.2 herein and his subordinate officers to allow the Petitioner Company to pay amount equal to the excise duty leviable on the goods lying with the Petitioner Company at the manufacturing plant proposed to be debonded out of legally availed Cenvat credit and thereupon allowing the Petitioner Company to operate the concerned manufacturing plant as a normal domestic manufacturer;
(C) Pending hearing and final disposal of the present petition, Your Lordships may be pleased to direct the Respondent No.2 herein to allow the Petitioner Company to pay from Cenvat Credit account an amount equal to the excise duty leviable on the goods procured duty free and lying with the Petitioner Company at its manufacturing plant proposed to be debonded and thereupon allow the Petitioner Company to operate this plant as a domestic manufacturer on the terms and conditions that may be deemed fit by this Hon'ble Court:
(D) An ex-parte ad-interim relief in terms of para 20(C) above may kindly be granted.
(E) Any other further relief that may be deemed fit in the facts and circumstances of the case may also please be granted.Page 8 of 20 Uploaded by BINA SHAH(HC00353) on Wed Jan 01 2025 Downloaded on : Fri Jan 03 22:19:38 IST 2025
NEUTRAL CITATION C/SCA/14949/2015 JUDGMENT DATED: 18/12/2024 undefined
5. By way of interim order dated 30.10.2015, this Court held as under:-
"6. The facts as emerging from the record clearly demonstrate that in case of similarly situated persons, namely, M/s Alps Chemicals Pvt. Ltd. and others, as stated in paragraph-9 of the memorandum of petition, the respondent authorities have permitted them to discharge the excise duty foregone from the Cenvat credit account instead of the cash payment. The petitioners have produced on record a copy of a communication dated 21.11.2014 of the Assistant Commissioner, Central Excise, Division-II, Ahmedabad addressed to the Deputy Development Commissioner in connection with the request for "No Due Certificate" for debonding of Exit out of 100% EOU Scheme by one M/s Alps Chemicals Pvt. Ltd., which clearly shows that the said unit has been permitted to discharge excise duty for indigenously procured duty paid raw materials lying in stock in their factory from the Cenvat credit account. In paragraphs 9 and 14 of the memorandum of petition, the petitioners have clearly stated the names of various parties in whose cases the Ahmedabad Commissionerate has permitted payment of excise duty from the Cenvat credit account. The petitioners have also stated that all over the country, EOUs are permitted to discharge the central excise duty foregone from the Cenvat credit account. Thus, on the ground of parity alone, the petitioners have made out a strong prima facie case, inasmuch as, when similarly situated assessees have been permitted to pay the excise duty foregone from the Cenvat credit account, there is no reason as to why the petitioners should be denied such benefit. Besides, the petitioner company is a reputed well established Pharmaceutical Company and hence, the interest of the revenue is in no manner jeopardized if the interim relief, as prayed for, is granted, whereas the petitioner company would have to face a cash crunch if called upon to pay the excise duty foregone in cash, whereas its Cenvat credit account would remain unutilized. Besides, as pointed out by the learned counsel for the petitioners, ultimately the excise duty foregone which is to be paid in cash, is going to be added back to the amount of Cenvat credit lying in the Page 9 of 20 Uploaded by BINA SHAH(HC00353) on Wed Jan 01 2025 Downloaded on : Fri Jan 03 22:19:38 IST 2025 NEUTRAL CITATION C/SCA/14949/2015 JUDGMENT DATED: 18/12/2024 undefined account of the petitioners, under the circumstances, the petitioners have clearly made out a prima facie case in their favour. Besides, as noted hereinabove, in case the petitioner company is required to pay the excise duty foregone in cash instead of from the Cenvat credit account, it is likely to face liquidity crunch, thereby causing irreparable injury to the petitioners. In Ralli Engine Ltd. v. Union of India and others (supra), this court, in the facts of the said case has held that when different companies situated in different regions of the country, are granted a particular benefit, the petitioner therein which was situated in Gujarat, was also entitled to the similar treatment. As noted hereinabove, various assessees, including the assessees situated within the jurisdiction of Ahmedabad Commissionerate have been given benefit of paying the excise duty foregone from the Cenvat credit account. Under the circumstances, prima facie, there appears to be no reason to deny such benefit to the petitioners.
7. In the light of the above discussion, the court is of the view that the matter requires consideration. Hence, issue rule returnable on 17th December, 2015. By way of interim relief, subject to the final outcome of the petition, the petitioners are permitted to pay the excise duty foregone from the legally availed Cenvat credit account. Upon the excise duty being paid through the Cenvat credit account, the second respondent shall issue "No Due Certificate" to the petitioners for debonding out of 100% EOU Scheme.
6. The short issue which therefore, arises for determination of this Court is whether the petitioners can be permitted to pay an amount equal to the excise duty leviable on the goods lying with the petitioners at the manufacturing plant proposed to be debonded, from the Cenvat credit account of the company ?
7. Mr. P.M Dave, learned advocate for the petitioners has submitted that the petitioners have brought to the notice of the excise authorities numerous cases of debonding permitted to EOUs.
Page 10 of 20 Uploaded by BINA SHAH(HC00353) on Wed Jan 01 2025 Downloaded on : Fri Jan 03 22:19:38 IST 2025NEUTRAL CITATION C/SCA/14949/2015 JUDGMENT DATED: 18/12/2024 undefined It was specifically submitted that an EOU is also manufacturer and all the benefits allowed to manufacturers are admissible to an EOU at the time of debonding and therefore, an EOU is allowed to avail Cenvat credit on capital goods, inputs and taxable services and must also consequently, be allowed to utilize duly availed Cenvat credit for discharging liabilities of the excise duty foregone on duty free procurement.
8. Learned advocate Mr. Dipak Kanchadani appearing for the respondent has submitted as under:-
8.1 Present writ petition under Article 226 of the Constitution of India is premature as the petitioners were issued a speaking order which was appealable in nature, therefore, the petitioners must be relegated to avail the alternative remedy.
8.2 Secondly, the issue that arises in the present case is that of debonding whereas the judgements cited by the petitioners pertain to the manner of payment of duty and therefore not applicable in the facts of the present case.
8.3 Thirdly, Mr. Khanchandani, learned advocate for the respondent No.2 submitted that the manner of utilization of Cenvat by 100% EOU is prescribed in Rule 17 of the Central Excise Rules and therefore, the provisions of the said Rule had to be followed and therefore, the petitioners have to pay the excise duty forgone from Page 11 of 20 Uploaded by BINA SHAH(HC00353) on Wed Jan 01 2025 Downloaded on : Fri Jan 03 22:19:38 IST 2025 NEUTRAL CITATION C/SCA/14949/2015 JUDGMENT DATED: 18/12/2024 undefined their Cenvat credit account only by cash. In view of the above, the present petition deserves to be dismissed and interim relief granted on 30.10.2015 deserves to be vacated.
9. Discussion and Findings :-
9.1 The petitioner No.1-Company is engaged in manufacturing of pharmaceutical and chemical products. The petitioners had their factory situated in village Lodriyal in Taluka Sanand, District Ahmedabad which was allowed to be operated as 100% Export Oriented Unit (EOU) . The petitioners had operated the unit as an "EOU" till January, 2015 when one of its manufacturing units was proposed to be excluded from the existing EOU, a practice known as partial debonding, which is permissible under the EOU Scheme. The Development Commissioner, KASEZ had in principle allowed the petitioners' application for partial debonding but certificate of confirmation regarding discharging duties foregone on the goods lying unutilized in the petitioners' plant that was proposed, had to be taken from the respondent No.2 .The petitioners had proposed that the customs duty foregone on the imported materials shall be paid in cash whereas, the excise duty foregone on the goods lying in the plant shall be paid from legally availed Cenvat credit lying with the petitioners. The petitioners had further reasoned that the difference in the modes of payment was on account of the fact that the customs duties were required to be discharged by any importer(s) by paying dues as prescribed whereas, the excise duties could be paid by the manufacturer(s) of the goods from the accrued Cenvat credit of the Page 12 of 20 Uploaded by BINA SHAH(HC00353) on Wed Jan 01 2025 Downloaded on : Fri Jan 03 22:19:38 IST 2025 NEUTRAL CITATION C/SCA/14949/2015 JUDGMENT DATED: 18/12/2024 undefined said manufacturer (s).
9.2 The dispute arose in respect of the portion of the excise duty payable by the petitioners when, the respondent No.2, by communication dated 03.08.2015 (impugned) called upon the petitioners to pay the excise duty only in cash and not from the Cenvat credit, relying upon Rule 3(4) of the Cenvat Credit Rules, 2004 . The petitioners thereafter, made a representation on 12.08.2015 as to why it ought to to be permitted to utilize the Cenvat credit for discharging their excise duty liability. By further communication dated 19.8.2015 (impugned), the said representation came to be rejected. The petitioners therefore, challenged the aforesaid two communications dated 03.08.2015 and 19.8.2015 by way of present writ petition.
10. Partial debonding of an unit from the existing EOU is permissible under EOU Scheme, inasmuch as, there is no bar to such debonding, that has been brought to the notice of this Court.
10.1 In case of Eicher Motors Ltd. [1999 (106) ELT 3(SC)], it has been held by the Hon'ble Supreme Court as under :-
"5. Rule 57-F(4-A) was introduced into the Rules pursuant to the Budget for 1995-96 providing for lapsing of credit lying unutilised on 16-3-1995 with a manufacturer of tractors falling under Heading No. 87.01 or motor vehicles falling under Heading Nos. 87.02 and 87.04 or chassis of such motor vehicles under Heading No. 87.06. However, Page 13 of 20 Uploaded by BINA SHAH(HC00353) on Wed Jan 01 2025 Downloaded on : Fri Jan 03 22:19:38 IST 2025 NEUTRAL CITATION C/SCA/14949/2015 JUDGMENT DATED: 18/12/2024 undefined credit taken on inputs which were lying in the factory on 16- 3-1995 either as parts or contained in finished products lying in stock on 16-3-1995 was allowed. Prior to the 1995- 96 Budget, the Central excise/additional duty of customs paid on inputs was allowed as credit for payment of excise duty on the final products, in the manufacture of which such inputs were used. The condition required for the same was that the credit of duty paid on inputs could have been used for discharge of duty/liability only in respect of those final products in the manufacture of which such inputs were used. Thus it was claimed that there was a nexus between the inputs and the final products. In the 1995-96 Budget, the MODVAT Scheme was liberalised/simplified and the credit earned on any input was allowed to be utilised for payment of duty on any final product manufactured within the same factory irrespective of whether such inputs were used in its manufacture or not. The experience showed that credit accrued on inputs is less than the duty liable to be paid on the final products and thus the credit of duty earned on inputs gets fully utilised and some amount has to be paid by the manufactured by way of cash. Prior to the 1995-96 Budget, the excise duty on inputs used in the manufacture of tractors and commercial vehicles varied from 15% to 25%, whereas the final products attracted excise duty of 10% or 15% only. The value addition was also not of such a magnitude that the excise duty required to be paid on final products could have exceeded the total input credit allowed. Since the excess credit could not have been utilised for payment of the excise duty on any other product, the unutilised credit was getting accumulated. The stand of the assessees is that they have utilised the facility of paying excise duty on the inputs and carried the credit towards excise duty payable on the finished products. For the purpose of utilisation of the credit, all vestitive (sic) facts or necessary incidents thereto have taken place prior to 16-3- 1995 or utilisation of the finished products prior 16-3-1995. Thus the assessees became entitled to take the credit of the input instantaneously once the input is received in the factory on the basis of the existing Scheme. Now by application of Rule 57- F(4-A), the credit attributable to inputs already used in the manufacture of the final products Page 14 of 20 Uploaded by BINA SHAH(HC00353) on Wed Jan 01 2025 Downloaded on : Fri Jan 03 22:19:38 IST 2025 NEUTRAL CITATION C/SCA/14949/2015 JUDGMENT DATED: 18/12/2024 undefined and the final products which have already been cleared from the factory alone is sought to be lapsed, that is, the amount that is sought to be lapsed relates to the inputs already used in the manufacture of the final products but the final products have already been cleared from the factory before 16-3-1995. Thus the right to the credit has become absolute at any rate when the input is used in the manufacture of the final product. The basic postulate that the Scheme is merely being altered and, therefore, does not have any retrospective or retroactive effect, submitted on behalf of the State, does not appeal to us. As pointed out by us that when on the strength of the Rules available, certain acts have been done by the parties concerned, incidents following thereto must take place in accordance with the Scheme under which the duty had been paid on the manufactured products and if such a situation is sought to be altered, necessarily it follows that the right, which had accrued to a party such as the availability of a scheme, is affected and, in particular, it loses sight of the fact that the provision for facility of credit is as good as tax paid till tax is adjusted on future goods on the basis of the several commitments which would have been made by the assesses concerned. Therefore, the Scheme sought to be introduced cannot be made applicable to the goods which had already come into existence in respect of which the earlier Scheme was applied under which the assessees had availed of the credit facility for payment of taxes. It is on the basis of the earlier Scheme necessarily that the taxes have to be adjusted and payment made complete. Any manner or mode of application of the said Rule would result in affecting the rights of the assessees
6. We may look at the matter from another angle. If on the inputs, the assessee had already paid the taxes on the basis that when the goods are utilised in the manufacture of further products as inputs thereto then the tax on these goods gets adjusted which are finished subsequently. Thus a right accrued to the assessee on the date when they paid the tax on the raw materials or the inputs and that right would continue until the facility available thereto gets worked out or until those goods existed. Therefore, it becomes clear Page 15 of 20 Uploaded by BINA SHAH(HC00353) on Wed Jan 01 2025 Downloaded on : Fri Jan 03 22:19:38 IST 2025 NEUTRAL CITATION C/SCA/14949/2015 JUDGMENT DATED: 18/12/2024 undefined that Section 37 of the Act does not enable the authorities concerned to make a rule which is impugned herein and, therefore, we may have no hesitation to hold that the Rule cannot be applied to the goods manufactured prior to 16-3- 1995 on which duty had been paid and credit facility thereto has been availed of for the purpose of manufacture of further goods 10.2 In the case of Collector Vs. Dai Ichi Karkaria Ltd. [1999 (112) ELT 353 (SC)], the Hon'ble Apex Court has recorded categorical findings as under:-
"Rule 57G provides that the manufacturer intending to take credit of duty paid on inputs must file a declaration with the concerned excise officer indicating what the final products are that are manufactured in its factory and the inputs intended to be used therein and obtain an acknowledgement thereof. The manufacturer, having filed the declaration and obtained the acknowledgement, can take credit for the duty on the inputs received by him. Rule 57I provides for the recovery of credit wrongly availed of or utilised in an irregular manner. The manufacturer is then required to show cause why he should not be disallowed such credit, or, if it has utilised it, why its value should not be recovered from him. After considering the reply, the concerned excise officer is empowered to make the appropriate order in such terms.
It is clear from these Rules, as we read them, that a manufacturer obtains credit for the excise duty paid on raw material to be used by him in the production of an excisable product immediately it makes the requisite declaration and obtains an acknowledgement thereof. It is entitled to use the credit at any time thereafter when making payment of excise duty on the excisable product. There is no provision in the Rules which provides for a reversal of the credit by the excise authorities except where it has been illegally or irregularly taken, in which event it stands cancelled or, if Page 16 of 20 Uploaded by BINA SHAH(HC00353) on Wed Jan 01 2025 Downloaded on : Fri Jan 03 22:19:38 IST 2025 NEUTRAL CITATION C/SCA/14949/2015 JUDGMENT DATED: 18/12/2024 undefined utilised, has to be paid for. We are here really concerned with credit that has been validly taken, and its benefit is available to the manufacturer without any limitation in time or otherwise unless the manufacturer itself chooses not to use the raw material in its excisable product. The credit is, therefore, indefeasible. It should also be noted that there is no co-relation of the raw material and the final product; that is to say, it is not as if credit can be taken only on a final product that is manufactured out of the particular raw material to which the credit is related. The credit may be taken against the excise duty on a final product manufactured on the very day that it becomes available.
It is, therefore, that in the case of Eicher Motors Ltd. vs. Union of India [1999(106) ELT 3] this Court said that a credit under the MODVAT scheme was as good as tax paid 10.3 In the the case of Indsur global Vs. Union of India reported in 2014(310) ELT 833 (Guj.), this Court has held as under :-
"34. By no stretch of imagination, the restriction imposed under sub-rule (3A) of rule 8 to the extend it requires a defaulter irrespective of its extent, nature and reason for the default to pay the excise duty without availing cenvat credit to his account can be stated to be a reasonable restriction. It leads to a situation so harsh and a position so unenviable that it would be virtually impossible for an assessee who is trapped in the whirlpool to get out of his financial difficulties. This is quite apart from being wholly reasonable, being irrational and arbitrary and therefore, violative of Article 14 of the Constitution. It prevents him from availing credit of duty already paid by him. It also is a serious affront to his right to carry on his trade or business guaranteed under Article 19(1)(g) of the Constitution. On both the counts, therefore, that portion of sub-rule (3A) of rule must fail.
35. The situation can be looked at slightly different angle. With or without the provisions of sub-rule (3A), liability to Page 17 of 20 Uploaded by BINA SHAH(HC00353) on Wed Jan 01 2025 Downloaded on : Fri Jan 03 22:19:38 IST 2025 NEUTRAL CITATION C/SCA/14949/2015 JUDGMENT DATED: 18/12/2024 undefined pay interest for the default period as per sub-rule (3) of rule 8 continues. Sub-rule (3A) is basically a mechanism for stringent recovery and does not create a new liability unless this mechanism itself is breached. In C/SCA/3344/2014 JUDGMENT such a mechanism to provide for withdrawal of CENVAT credit facility for paying the duty borders to creating a penalty. Insisting on an assessee in default to clear all consignments on payment of duty would be a perfectly legitimate measure. However, to insist that he must pay such duty without utilising CENVAT credit which is nothing but the duty on various inputs already paid by him would be a restriction so harsh and out of proportion to the aim sought to be achieved, the same must be held to be wholly arbitrary and unreasonable. We may recall, the delegated legislature in its wisdom now dismantled this entire mechanism and instead has provided for penalty at the rate of 1% per month on delayed payment of duty.
36. In the result, the condition contained in sub-rule (3A) of rule 8 for payment of duty without utilizing the cenvat credit till an assessee pays the outstanding amount including interest is declared unconstitutional. Therefore, the portion "without utilizing the cenvat credit" of sub-rule (3A) of rule 8 of the Central Excise Rules, 2002, shall be rendered invalid.
11. Rule 3(4) of the Cenvat Credit Rules was an enabling provision for utilization of Cenvat credit. This Court has held in CCE Vs. Shilpa Copper Wire Industries reported in 2011(269) ELT 17 (Guj.) that there is no difference between 100% export oriented unit and a normal DTA Unit as regards the Cenvat scheme.
12. During the pendency of the aforesaid petition, the Goods and Service Tax Act, 2017 has come into force from July, 2017.
13. After the GST regime has come into force, the underlying Page 18 of 20 Uploaded by BINA SHAH(HC00353) on Wed Jan 01 2025 Downloaded on : Fri Jan 03 22:19:38 IST 2025 NEUTRAL CITATION C/SCA/14949/2015 JUDGMENT DATED: 18/12/2024 undefined scheme of availing Cenvat credit for payment of duties has been continued in Chapter XX -Transitional provisions.
Section 142(6)(a) of the Central Goods and Service Tax Act, 2017 reads as under:-
"(6) (a) every proceeding of appeal, review or reference relating to a claim for CENVAT credit initiated whether before, on or after the appointed day under the existing law shall be disposed of in accordance with the provisions of existing law, and any amount of credit found to be admissible to the claimant shall be refunded to him in cash, notwithstanding anything to the contrary contained under the provisions of existing law other than the provisions of sub-section (2) of section 11B of the Central Excise Act, 1944 (1 of 1944) and the amount rejected, if any, shall not be admissible as input tax credit under this Act:
14. In view of the provision of Section 142(6)(a) of GST Act,also the petitioners will not be liable to pay the amount of excise duty in cash and would be entitled for refund of the outstanding credit in cash as per the aforesaid provisions.
15. It will be seen on plain reading of section that "any amount of credit found to be admissible to the claimant shall be refunded to him in cash". Therefore, there can be no arguments to the contrary that the legitimately availed Cenvat credit could not be used for the payment of duties and therefore, the demand of the respondents to pay the excise duty on goods that would be manufactured in the concerned manufacturer plant of the petitioner -company after debonding has to be rejected outright.
Page 19 of 20 Uploaded by BINA SHAH(HC00353) on Wed Jan 01 2025 Downloaded on : Fri Jan 03 22:19:38 IST 2025NEUTRAL CITATION C/SCA/14949/2015 JUDGMENT DATED: 18/12/2024 undefined
16. Therefore, in view of the interim order dated 30.10.2015, since the "No Due Certificate" has been issued to the petitioners for debonding out of 100% EOU scheme upon the petitioners having been permitted to pay the excise duty forgone from the legally availed Cenvat credit account, this petition succeeds and the direction to pay excise duty in cash conveyed by the Respondent No.2 vide letters No. F.No.VIII/48-08/Cus/Dishman/13-14 dated 3.8.2015 and 19.8.2015 are hereby quashed and set aside . Rule is made absolute to the aforesaid extent. No order as to costs.
(BHARGAV D. KARIA, J) (D.N.RAY,J) BINA SHAH Page 20 of 20 Uploaded by BINA SHAH(HC00353) on Wed Jan 01 2025 Downloaded on : Fri Jan 03 22:19:38 IST 2025