Custom, Excise & Service Tax Tribunal
Cce, Delhi I vs M/S Sharp Menthol (India) Ltd on 27 November, 2014
IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL West Block No. 2, R.K. Puram, New Delhi 110 066. Principal Bench, New Delhi COURT NO. III DATE OF HEARING : 18/07/2014. DATE OF DECISION : 27/11/2014. Excise Appeal No. 3191 of 2009 [Arising out of the Order-in-Original No. 20-22/D-I/2009 dated 31/08/09 passed by The Commissioner, Central Excise, Delhi - I.] and Excise Appeal No. 1027 of 2010 [Arising out of the Order-in-Appeal No. 62/CE/DLH/2010 dated 22/03/10 passed by The Commissioner, Central Excise (Appeals), Delhi - I.] For Approval and signature : Honble Ms. Archana Wadhwa, Member (Judicial) Honble Shri Rakesh Kumar, Member (Technical) 1. Whether Press Reporters may be allowed to see : the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982? 2. Whether it would be released under Rule 27 of : the CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not? 3. Whether their Lordships wish to see the fair : copy of the order? 4. Whether order is to be circulated to the : Department Authorities? CCE, Delhi I Appellant Versus M/s Sharp Menthol (India) Ltd. Respondent
Appearance Shri A.K. Raha, Special Counsel (Advocate) for the appellant.
S/Shri C. Hari Shankar and S. Sunil, Advocates for the Respondent.
CORAM : Honble Ms. Archana Wadhwa, Member (Judicial) Honble Shri Rakesh Kumar, Member (Technical) Final Order No. 54515-54516/2014 Dated : 27/11/2014 Per. Rakesh Kumar :-
The facts leading to filing of these appeals are, in brief, as under.
1.1 The respondent have two manufacturing units in Delhi at C-15 and C-3, SMA Co-Operative Industrial Estate, G.T. Karnal Road, Delhi. In these two units they manufacture Menthol Crystals, BP/USP and Menthol BP/USP classifiable under sub-heading 30039021 and other Flavouring material such as Mentha Piperita Oil, Menthol (liquid), Rectified Spearmint Oil, Menthone etc. classifiable under sub-heading 33029090. The raw material for these final products is Menthol (sub-heading 29061100), De-Mentholized Oil (DMO) (sub-heading 33012590), De-terpenated Fractionated Mentha Oil (DFMO) (sub-heading 33019059) and Mentha Piperita Oil (MPO) (sub-heading 3301240). These inputs were being received from manufacturers in Jammu availing of exemption under Notification NO. 56/02-CE. In respect of the above-mentioned inputs being received by them, they were availing Cenvat credit of the duty paid on them in terms of the provisions of Rule 12 of the Cenvat Credit Rules, 2004. Among the final products, while during the period prior to 01/03/08, all the final products were dutiable, w.e.f. 01/03/08 by Notification No. 4/08-CE dated 01/03/08 issued under Section 5A(i)of the Central Excise Act, 1944, the Menthol Crystals BP/USP and Menthol BP/USP falling under Chapter heading 30039021 became fully and unconditionally exempt from Central Excise duty. The remaining final products Mentha Piperita Oil, Menthol (liquid), Rectified Spearmint Oil, Menthon etc. remained dutiable. The dispute in this case is for the period from 1st March 2008 to May 2009. As on 01/03/08, when the Menthol Crystals BP/USP and Menthol BP/USP became fully exempt from duty, there was some opening balance of the Cenvat credit, which according to the Department, in terms of the provisions of Rule 11 (3) of the Cenvat Credit Rules, 2004, after reversing the Cenvat credit involved on the cenvated inputs lying in stock as on 01/03/08, cenvated inputs in process and the cenvated inputs contained in the stock of finished goods as on 01/03/08, the balance would lapse and in other words, this balance of Cenvat credit could neither be used for payment of duty on any dutiable final products nor its cash refund could be claimed under Rule 5 of the Cenvat Credit Rules, 2004. During the period from 01/03/08 to May 2009, the appellant continued to avail input duty Cenvat credit, even though the main final products Menthol Crystals BP/USP and Menthol BP/USP had become fully and unconditionally exempt from duty. According to the Department during this period, the respondent could not avail the Cenvat credit as the main final product were fully exempt from duty, even though the other final products - Mentha Piperita Oil, Menthol (liquid), Rectified Spearmint Oil etc. were dutiable. The contention of the appellant is that throughout during the period of dispute, Menthol Crystals BP/USP and Menthol BP/USP were being exported out of India under bond in terms of Rule 19 of the Central Excise Rules, 1944 and, therefore, in terms of the provisions of Rule 6 (6) (V) of the Cenvat Credit Rules, they were eligible for the input duty credit. Accordingly, three show cause notices dated 09/09/08, 22/12/08 and 23/07/09 were issued for recovery of allegedly wrongly taken Cenvat credit of Rs. 14,04,09,663/- [opening balance of Cenvat credit as on 01/03/08], Rs. 27,43,50,554/- [Cenvat credit availed during period from March 2008 to July, 2008], Rs. 24,74,15,042/- [Cenvat credit availed for the period from July 2008 to November 2008] and Rs. 11,13,07,967/- [Cenvat credit availed during the period from December 2008 to May 2009]. These show cause notices besides demand of the allegedly wrongly availed Cenvat credit alongwith interest, also sought imposition of penalty on the appellant under Rule 15 of the Cenvat Credit Rules, 2004.
1.2 The above three show cause notices were adjudicated by the Commissioner, Central Excise, Delhi I vide order-in-original No. 20-22/D-I/2009 dated 31/08/09 by which the Commissioner relying upon the judgment of Honble Bombay High Court in the case of Repro India Ltd. vs. Union of India reported in 2009 (235) ELT-614 (Bom.) and also the judgment of Honble Delhi High Court in the case of CCE, Delhi I vs. Punjab Stainless Steel reported in 2009 (234) E.L.T. 605 (Del.) dropped the proceedings initiated against the respondent by the three show cause notices mentioned above. The Commissioner in this order held that the provisions of Rule 6 (6) (V) of the Cenvat Credit Rules, 2004 are applicable to this case as the Menthol Crystals BP/USP and Menthol BP/USP, though fully and unconditionally exempt from duty w.e.f. 01/03/08, had been exported out of India and that in respect of the credit balance as on 01/03/08 the provisions of Rule 11 (3) of the Cenvat Credit Rules, 2004 would not be applicable.
1.3 This order of the Commissioner was examined by the Committee of Chief Commissioners for examining its legality and propriety and the Committee exercising powers under Section 35E (1) of the Central Excise Act, 1944 issued a review order No. 69/09 dated 20th November 2009 directing the Commissioner to file an application before the Tribunal under Section 35E (4) of the Central Excise Act, 1944 for correct determination of the points arising of the adjudication order as mentioned in the review order. In pursuance of this order of the Committee, the Commissioner filed an application before Tribunal under Rule 35E (4) of the Central Excise Act, 1944 which has been registered as an appeal No. E/3191/09 EX by the Department.
1.4 The respondent during the period from March 2009 to December 2009 filed seven refund claims totalling Rs. 10,27,09915/- under Rule 5 of the Cenvat Credit Rules, 2004 for cash refund of the accumulated Cenvat credit which could not be utilized for payment of duty on domestic clearances or for payment of duty on the goods cleared for export. These refund claims were for period from March 2008 to December 2008. The refund had been claimed of the Cenvat credit taken in respect of inputs used in the manufacture of the finished goods which had been exported out of India under bond. The refund claims totalling Rs. 10,27,09,915/- were rejected by the Assistant Commissioner. But on appeals being filed to Commissioner (Appeals), the Assistant Commissioners order rejecting the refund claim was reversed and the refund claims were allowed vide order-in-appeal No. 62/CE/DLH/2010 dated 22/03/10. This order of the Commissioner (Appeals) was examined by Committee of Commissioners for its legality and propriety in terms of provisions of Section 35B (2). The Committee of Commissioners vide order No. 65/09 dated 26/04/10 authorised the filing of appeal to Tribunal against this order of the Commissioner (Appeals) and accordingly the appeal No. E/1027/2010 was filed against the order-in-appeal No. 62/CE/DLH/2010 dated 22/03/10 passed by the Commissioner (Appeals).
1.5 Since, the issues involved in these appeals are identical the same were heard together.
2. Heard both the sides.
3. Shri A.K. Raha, Advocate, the learned Special counsel for the Revenue, made the following submissions :-
(i) The respondent in their two manufacturing units in Delhi manufacture Menthol Crystals BP/USP, Menthol BP/USP and flavouring materials, the raw materials for which are Menthol, De-terpenated Fractionated Mentha Oil (DFMO), De-Mentholized Oil (DMO), Mentha Oil and Mentha Piperita Oil which they get from four suppliers in Jammu M/s Ambika International, M/s Fine Aromatics, M/s Jay Ambey Aromatics and M/s Shiva Mint Industries, all of which located in the areas specified in Notification No. 56/02-CE are availing of exemption under this notification under which the duty paid in cash by them is refunded to them in full. The manufacturing unit of the respondent in Delhi take Cenvat credit in respect of the duty paid material received from the above-mentioned four Jammu units in terms of the provisions of Rule 12 of the Cenvat Credit Rules, 2004. Menthol Crystals BP/USP and Menthol BP/USP became fully exempt from duty w.e.f. 01/03/08 in terms of exemption Notification No. 4/08-CE dated 01/03/08. When these final products became fully and unconditionally exempt from duty, there was no question of their export under bond. Therefore, firstly, in terms of the provisions of Rule 11 (3) of Cenvat Credit Rules, 2004 the respondent were required to reverse the Cenvat credit involved on the cenvated inputs lying in stock, cenvated inputs in process and cenvated inputs contained in finished product lying in stock as on 01/3/08 and the balance amount of Cenvat credit, if any left, would lapse, and secondly, they could not avail any Cenvat credit in respect of fresh receipt of inputs during period w.e.f. 01/03/08. Even if the final product Menthol Crystals BP/USP and Menthol BP/USP had been exported out of India, the provisions of Rule 6 (6) (V) of the Cenvat Credit Rules, 2004 would not be attracted and the appellant would not be entitled for Cenvat credit in respect of inputs, as the final products were fully exempt from duty and there is no question of their export under bond without payment of duty or under letter of undertaking in terms of the provisions of Rule 19 of the Cenvat Credit Rules, 2004 readwith Notification No. 42/01-CE (NT) dated 26/06/01.
(ii) The respondents plea that the provisions of Rule 11 (3) would be applicable only if the impugned inputs were exclusively and solely used in the manufacture of exempt final product, is not correct as the entire inputs were put into processing to manufacture Menthol Crystals BP/USP and Menthol BP/USP, both exempt absolutely and unconditionally w.e.f. 01/03/08, and just because in course of processing of the raw menthol for manufacture of menthol crystals BP/USP and Menthol BP/USP, some residual oil is obtained which on further processing is converted into flavouring materials which are dutiable, it cannot be said that the provisions of Rule 11 (3) readwith Rule 6 (1) of the Cenvat Credit Rules, 2004 would not be applicable.
(iii) In terms of the provisions of Rule 11 (3) of Cenvat Credit Rules, 2004, when final product earlier dutiable, become fully exempt from duty, an amount equal to the Cenvat credit in respect of inputs in a stock, inputs in process and the inputs contained in the finished goods lying in the stock is required to be paid and after debiting this amount from the Cenvat credit balance, if any, on the date of exemption, if some Cenvat credit is still left, the same shall lapse and shall not be allowed to be utilized for payment of duty on any other final product whether cleared for home consumption or for export. The decision of the Adjudicating Authority that since the raw materials in the instant case were not exclusively and solely used in the manufacture of exempt goods, the provisions of Rule 11 (3) would not apply, is unfounded, fallacious and patently wrong as sub-Rule (3) (ii) of Rule 11 of Cenvat Credit Rules, 2004 does not make any exception in respect of export goods as is evident from the words whether cleared for home consumption or for export in this sub-Rule.
(iv) It was not correct on the part of the Adjudicating Authority to ignore and overlook the statutory provisions of Section 5A (1A) of Central Excise Act, 1944 which states that for the removal of doubt it is hereby declared that where an exemption under sub-Section (1) of Section 5A in respect of any excisable goods from the whole of the duty of excise leviable thereon has been granted unconditionally, the manufacturer of such excisable goods shall not pay duty of excise on such goods. The above sub-Section has been inserted in the statute w.e.f. 13/05/05 and was in force during the period of dispute. In view of such clear statutory provisions, the question of furnishing bond or letter of undertaking so as to safeguard duty in respect of goods exported would be an empty and futile formality. A harmonious construction of Section 5A (1A) of Central Excise Act, 1944 with Rule 6 (6) of the Cenvat Credit Rules, 2004 would be that the term excisable goods in this sub-rule should be read as dutiable goods. The above statutory provisions were not brought to the notice of Honble Bombay High Court in the cases of Repro India Ltd. vs. Union of India decided vide judgment reported in 2009 (235) E.L.T. 614 (Bom.) and the respondents own case decided vide 2011 (270) E.L.T. 212 (Bom.). In the given context of Rule 6 (6) (V) of Cenvat Credit Rules, 2004, which draws its colour, context and ambit from Rule 19 of the Central Excise Rules, 2002 readwith Section 5A (1A) of Central Excise Act, the term excisable in Rule 6 (6) (V) ought to be interpreted as dutiable only, as otherwise the provisions of export under bond/LUT under Rule 19 of the Central Excise Rules would become meaningless and empty formality. In fact by Notification No. 24/10-CE (NT) dated 26/05/10 Notification No. 42/01-CE (NT) dated 26/06/01 prescribing procedure and conditions for export under bond/LUT without payment of duty under Rule 19 of Central Excise Rules, 2002, was amended and a condition was inserted in the Notification No. 42/01-CE (NT) providing that the export of excisable goods which are chargeable to nil rate of duty or are fully exempted from duty, other than the goods cleared by 100% EOU, is not allowed under this notification. The amending Notification No. 24/10-CE (NT) dated 25/05/10 should be treated as retrospective amendment.
(v) A careful reading of provisions of Rule 19 of Central Excise Rules, 2001 readwith Notification No. 42/01-CE (NT) issued under sub-Rule (3) of the Rule 19 makes it patently clear that Rule 6 (6) (V) of the Cenvat Credit Rules ought to be readwith said Rule 19 under which any excisable goods may be cleared for export without payment of duty subject to such conditions, safeguards and procedures as may be specified by notification issued by the Board. Notification No. 42/01-CE (NT) issued under Rule 19 (3) specifies the condition of bond/letter of undertaking in order to safeguard the duty otherwise payable on the goods in case the goods are eventually not exported within six months from their clearance from the factory. In other words, such export goods are otherwise dutiable but for the exemption under Rule 19 of the Central Excise Rules. Rule 6 (6) (V) of Cenvat Credit Rules, 2004 which refers to the excisable goods removed without payment of duty for export under bond in terms of the provisions of Central Excise Rules, 2002 Rule 6 (6) (V) of Cenvat Credit Rules draws its colour, context and scope from the said Rule 19 and, therefore, the term excisable in this sub-Rule should be interpreted as dutiable and if any goods being fully and unconditionally exempt from duty are not dutiable, the provisions of this sub-Rule would not be applicable.
(vi) The Adjudicating Authority has erred in ignoring and over looking the proviso to Rule 5 of the Cenvat Credit Rules, 2004 which provides that no refund shall be allowed if the manufacturer interalia claims rebate in respect of such duty. In the instant case, no segregation of duty paid on inputs was made in reference to the final products and the refund and rebate were claimed from a common basket of input credit. To be precise, all the inputs, barring DFPO and DFSO, were admittedly processed to manufacture Menthol USP/BP and Menthol Crystals USP/BP in the first instance and only the residual materials were further processed with additional inputs such as DFPO and DFSO to manufacture flavouring materials. Since Menthol BP/USP and Menthol Crystals BP/USP were fully exempt from duty w.e.f. 01/03/08, no Cenvat credit was admissible in respect of inputs used in their manufacture and, therefore, utilization of such Cenvat credit for payment of duty on dutiable final products was not permissible. In any case, since part of Cenvat credit in respect of inputs for Menthol Crystals/Menthol USP/BP has been used for payment of duty on flavouring agents exported under rebate claim, Rule 5 refund of that Cenvat credit is not permissible. It is the case of the respondent that they first claimed rebate of duty paid on the dutiable flavouring material on export and thereafter filed refund claim in respect of the balance amount. It is, thus, obvious that the respondent did not segregate inputs that went into the exempted final products and dutiable final products and consequently they claimed export rebate and Rule 5 refund simultaneously in respect of all their inputs and thereby attracting the mis-chief of the proviso to Rule 5 of the Cenvat Credit Rules, 2004. Learned Commissioner (Appeals) in his order No. 62/CE/DLH/10 dated 22/03/10 has over-looked the above breach of condition of refund under Rule 5 of the Cenvat Credit Rules, while sanctioning refund hence his order merits to be set aside.
(vii) It is the case of the Revenue that refund under Rule 5 of Cenvat Credit Rules, 2004, going by the words of the said Rule as also the notifications issued under the said Rule, is restricted to the cases, where dutiable goods have been exported without payment of duty bond/letter of undertaking under Rule 19 of the Central Excise Rules, 2002 readwith Rule 6 (6) (V) of the Cenvat Credit Rules. As regards the refund or rebate in respect of the duty paid on inputs used in manufacture of absolutely exempted goods exported out of India, the governing provisions are Rule 18 of the Central Excise Rules, 2002 readwith Notification No. 21/04-CE (NT) dated 06/09/04. As the respondent have clearly failed to comply with the requirement of the said notification under Rule 18 of the Central Excise Rules, 2002, it was not correct on the part of the first Appellate Authority to overlook such failure and entertain the impugned refund claim.
(viii) It is not in dispute that Menthol falling under heading 29061100 of the Central Excise Tariff happened to be both input as also the export product in the subject case involving no manufacturing process in between. It is admitted fact that the respondent have claimed refund of Cenvat credit accruing on account of Menthol received as input and exported as such in terms of the provisions of Rule 5. The Adjudicating Authority has not taken into consideration the statutory provisions of Rule 3 (5) of Cenvat Credit Rules, 2004 according to which when Cenvat credit availed inputs or capital goods are cleared as such, an amount equal to the credit availed in respect of such inputs or capital goods shall be payable under the cover of invoices.
(ix) It was open to the respondent to claim rebate of duty of the un-utilised input credit under Rule 18 of the Central Excise Rules readwith Notification No. 21/04-CE (NT) instead of seeking refund under Rule 5 of the Cenvat Credit Rules. It is inexplicable as to why the respondent avoided such obvious legitimate course for tax neutralization in respect of their exempted products which were exported.
(x) In the facts and circumstances of this case, the judgment of Honble Bombay High Court in the case of Repro India Ltd. (supra) is not applicable. The issue involved in the case of Repro India Ltd. (supra) was whether the assessee, manufacturing both dutiable packaged software and dutiable stationery books, and non-dutiable printed books was entitled to export non-dutiable printed books under letter of undertaking so as to obtain cash refund of Cenvat credit under Rule 5 of the Cenvat Credit Rules, 2004. While the above issue is common with the issue in one of the cases in hand, the issue pertaining to the demand of Rs. 77.35 crores based on the provisions of Rule 11 (3) of Cenvat Credit Rules, 2004 is not covered by the said judgment of the Honble Bombay High Court. Similarly, the facts and issues in the judgment of Honble Bombay High Court in the case of Union of India vs. Sharp Menthol India Ltd. reported in 2011 (270) E.L.T. 212 (Bom.) are distinguishable from the facts of the cases in hand and, as such, the judgment of Honble Bombay High Court in the case of Union of India vs. Sharp Menthol India Ltd. (supra) is also not applicable to these cases.
(xi) The inputs in this case had been received from four Jammu units availing of exemption under Notification No. 56/02-CE, namely M/s Ambika International, M/s Fine Aromatics, M/s Jay Ambey Aromatics and M/s Shiva Mint Industries. Subsequent investigations revealed that these from Jammu suppliers of inputs had made only paper transactions with the respondent to generate Cenvat credit based on bogus invoices without any manufacture. Show cause notice to these four Jammu units and also to the respondent for reversal of the credit and also for penal action have been issued. In view of this evidence also, the impugned orders of the Commissioner as well as Commissioner (Appeals) are not sustainable.
4. S/Shri C. Harishankar and S. Sunil, Advocates, the learned Counsels for the respondent, made the following submissions :-
(i) the respondent manufacture Menthol Crystals BP/USP, Menthol BP/USP and flavouring materials. While the Menthol/Menthol Crystals, BP/USP, became fully exempt from duty w.e.f. 01/03/08 under Notification No. 4/08-CE, the other final products remained dutiable. However, all the final products whether exempted or dutiable were being exported out of India. While Menthol/Menthol Crystals, BP/USP were being exported under bond without payment of duty under Rule 19 of Central Excise Rules, 2002, the other final products flavouring agents were being cleared on payment of duty and were being exported under rebate claim. Prior to 01/03/08, all the final products of the appellant were dutiable. The first point of dispute is as to whether during period w.e.f. 01/03/08, the respondent could avail Cenvat credit of duty paid on the inputs which were used in the manufacture of Menthol/Menthol Crystals BP/USP exported out of India under Rule 19 of Central Excise Rules and whether they were entitled for its cash refund in terms of Rule 5 of Cenvat Credit Rules, 2004 as the respondent were not in a position to utilize the credit for payment of duty on clearance for home consumption or for export. Another point of dispute is as to whether in terms of Rule 11 (3) of Cenvat Credit Rules, 2004, Cenvat credit balance in the respondents Cenvat credit account as on 01/03/08 is to be reversed just because out of several final products being manufactured by them, two final products Menthol Crystals BP/USP and Menthol BP/USP became fully exempt w.e.f. 01/03/08 even though other final products remained dutiable. The first issue stands decided in favour of the respondent by judgment of Honble Bombay High Court in case of Repro India Ltd. vs. Union of India reported in 2009 (235) E.L.T. 614 (Bom.), by Honble Himachal Pradesh High Court in the case of CCE vs. Drish Shoes Ltd. reported in 2010 (254) E.L.T. 417 (H.P.) and also by Honble Delhi High Court in the case of CCE, Delhi I vs. Punjab Stainless Steel reported in 2009 (234) E.L.T. 605 (Del.). Honble Bombay High Court in the case of Repro India Ltd. (supra) has held that when inputs are used in manufacture of dutiable as well as exempted final products and the exempted final products are exported out of India, the provisions of Rule 6 (6) (V) of the Cenvat Credit Rules, 2004 would be applicable and the bar of Rule 6 (1) of the Cenvat Credit Rules and the liability created under Rule 6 (3) (b) would not be attracted. In this judgment Honble Bombay High Court held that the words excisable goods in Rule 6 (6) of Cenvat Credit Rules, 2004 are wide enough to include both dutiable as well as exempted goods. Same view has been expressed by Honble Himachal Pradesh High Court in the case of CCE vs. Drish Shoes Ltd. (supra) and also by Honble Delhi High Court in the case of CCE, Delhi I vs. Punjab Stainless Steel (supra) to the provisions of Rule 5 of Cenvat Credit Rules, 2004.
(ii) Honble Bombay High Court in the respondents own case Union of India vs. Sharp Menthol India Ltd. reported in 2011 (270) E.L.T. 212 (Bom.) vide judgment dated 06/04/11 has held that when Menthol Crystals fully exempt from duty were exported under bond under Rule 19 of the Central Excise Rules, 2002, the case is covered under Rule 6 (6) (V) of the Cenvat Credit Rules, 2004 and the provisions of Rule 6 (1) to Rule 6 (4) of the Cenvat Credit Rules, 2004 would not be applicable and that the disallowance of input credit under Rule 6 (1) to 6 (4) ibid is applicable only when the inputs used in the manufacture of exempted final products have been cleared for home consumption without payment of duty. The ratio of this judgment of Honble Bombay High Court is squarely applicable to the facts of this case. The SLP filed by the Government against this judgment has also been dismissed by the Apex court vide order dated 04/04/12 and, therefore, this judgment of Honble Bombay High Court is binding on the Department.
(iii) The amendment to Notification No. 42/01- CE (NT) dated 26/06/01 by Notification No. 24/10 CE (NT) dated 26/05/10 providing that the export of excisable goods which are chargeable to nil rate of duty or are fully exempted from payment of duty, other than the goods cleared by a 100% EOU, shall not be allowed under this notification cannot be given retrospective effect, as this amendment restricts the benefits available to an exporter. This issue also stands covered in favour of the respondent by the judgments of Honble Delhi High Court in the case of Selex Impex Ltd. vs. Union of India reported in 2006 (194) E.L.T. 146 (Del.) and Union of India vs. Selex Impex Ltd. reported in 2009 (245) E.L.T. 45 (Del.).
(iv) It was candidly acknowledged by the learned Special Counsel for the Revenue during hearing that were the Revenue to succeed in the present appeal, it could recover back from the respondent the amount which had been paid to it consequent to the directions of Honble Bombay High Court. This single submission is sufficient to dismiss the entire case of the Revenue as the Revenue obviously cannot be permitted to pray before this Tribunal for an order, which would nullify the relief granted by the Honble Bombay High Court specially after having failed in its challenge against the said judgment before Honble Supreme Court as well.
(v) Rule 11 (3) (ii) of Cenvat Credit Rules, 2004 does not apply when a manufacturer manufacturers dutiable as well as exempted final products out of common Cenvat credit availed inputs. This issue was specifically urged as ground (xv) in the SLP preferred before the Apex Court against judgment dated 06/04/11 of Honble Bombay High Court, but still the judgment of Honble Bombay High Court was affirmed by the Apex Court vide order dated 04/04/12.
(vi) As regards the allegation that the transaction between the supplier units - M/s Ambika International, M/s Fine Aromatics, M/s Jay Ambey Aromatics and M/s Shiva Mint Industries and the respondent regarding supply of Menthol and other raw material were bogus transactions and that only invoices had been issued by the Jammu units without supply of any material and in this regard show cause notices have been issued to these Jammu units and also to the respondent for recovery of the credit, this allegation had not been made in any of the show cause notices issued in the present appeals. It is well settled law that show cause notice is the foundation in the matter of levy and recovery of duty, penalty and interest and the Adjudicating Authority or appellate authority cannot travel beyond the allegations made in the show cause notice.
4.1 In view of the above submissions, it was pleaded that there is no infirmity in the orders passed by the Commissioner, Central Excise, Delhi I and the Commissioner of Central Excise (Appeals), Delhi.
5. We have considered the submissions from both the sides and perused the records.
6. The period of dispute in these cases is from March 2008 to May 2009. The undisputed facts are that during this period the respondent had procured duty paid Menthol, De-Mentholized Oil (DMO), De-terpenated Fractionated Mentha Oil (DFMO), Mentha Oil, Mentha Piperita Oil (MPO) etc. from four Jammu units M/s Ambika International, M/s Fine Aromatics, M/s Jay Ambey Aromatics and M/s Shiva Mint Industries and on the basis of the duty payment invoice issued by these four suppliers, the respondent had taken Cenvat credit of the duty paid on the raw materials. The respondent had processed the above-mentioned raw materials for manufacture of Menthol Crystals/Menthol USP/BP and flavouring materials, all of which had been exported out of India the Menthol/Menthol Crystals, BP/USP under bond under Rule 19 of the Central Excise Rules, 2002 and the flavouring materials, cleared on payment of duty, under rebate claim. During period prior to 01/03/08, all the final products were dutiable. However, w.e.f. 01/03/08, by exemption Notification No. 4/08-CE dated 01/03/08, Menthol Crystals BP/USP and Menthol USP/BP became fully exempt from duty.
6.1 In terms of Rule 6 (1) of the Cenvat Credit Rules, 2004, Cenvat credit shall not be allowed on such quantity of input or input services, which is used in the manufacture of exempted goods except in these circumstances mentioned in sub-Rule (2). In terms of sub-Rule (2) of Rule 6 ibid, when a manufacturer avails of Cenvat credit in respect of any input or input services and manufactures such final products which are chargeable to duty as well as the exempted goods, then the manufacturer shall either maintain separate account and inventory for the receipt, consumption of the inputs/input services meant for use in the manufacture of dutiable final product and exempted final product and take Cenvat credit only in respect of inputs/input services used in or in relation to manufacture of dutiable final product, or if does not maintain such account and inventory, in accordance with the provisions of sub-Rule (3) of Rule 6, he shall pay an amount either equal to 10%/5% of the sale price of the exempted final product or equal to the Cenvat credit involved on the inputs/input services used in or in relation to manufacture of exempted final products, to be calculated as per the provisions of this sub-Rule.
6.2 In accordance with the provisions of Rule 11 (3) of Cenvat Credit Rules, 2004, a manufacturer or producer of the final product shall be required to pay an amount equivalent to Cenvat credit, if any, taken by him in respect of inputs received for use in the manufacture of final product lying in his stock or in process or contained in the final product lying in his stock, if (i) he opts for an exemption from whole of the duty excise leviable on such excisable product manufactured by him under a notification issued under Section 5A(i) of the Act or (ii) the said final product has been exempted absolutely by a notification issued under Section 5A(i) of the Act and after deducting the said amount from the balance of the Cenvat credit, if any lying in his credit, the balance, if any still remaining, shall lapse and shall not be allowed to be utilized for payment of duty on any final product whether cleared for home consumption or for export.
6.3 In this case even during period w.e.f. 01/03/08 onwards, the respondent continued to avail Cenvat credit in respect of the duty paid inputs received by them even though Menthol Crystals BP/USP and Menthol USP/BP had become fully exempt from duty and they did not pay as per the provisions of Rule 11 (3), an amount equal to Cenvat Credit involved on inputs in stock, inputs in process and the inputs contained in the final products lying in stock and on 01/03/2008 and lapse the Cenvat Credit balance as on 01/03/2008, if still remaining. The departments case against the respondent is that since w.e.f. 01/03/08, the main products Menthol Crystals BP/USP and Menthol USP/BP became fully and unconditionally exempt from duty, notwithstanding the fact that the other final products flavouring agents still remained dutiable and were cleared on payment of duty, the appellant were required to comply with the provisions of Rule 11 (3) by debiting from the Cenvat credit balance as on 01/03/08, an amount equal to the Cenvat credit involved on the inputs lying in stock, in process and/or contained in the final products lying in stock and on 01/03/08, and lapsing the balance amount of Cenvat credit, if any, left; and w.e.f. 01/03/08 they could not avail any Cenvat credit in respect of the fresh receipt of the inputs. The case of the respondent is that since their main final products had been exported out of India under bond, notwithstanding the fact that Menthol Crystals BP/USP, and Menthol USP/BP became fully exempt from duty w.e.f. 01/03/08, the provisions of Rule 6 (1), 6 (2), 6 (3) of Cenvat Credit Rules, 2004 would not be applicable in view of the provisions of Rule 6 (6) (v) of the Cenvat Credit Rules, 2004 and in this regard the respondent rely upon judgments of Honble Bombay High Court in the case of Repro India Ltd. vs. Union of India (supra), Union of India vs. Sharp Menthol India Ltd. (supra) and also the judgment of Honble Delhi High Court in the case of CCE, Delhi I vs. Punjab Stainless Steel (supra). Besides this, it is also pleaded that the provisions of Rule 11 (3) (ii) of Cenvat Credit Rules, 2004 are not applicable to this case, as during period w.e.f. 01/03/08, the respondent, besides the exempted final products, had continued to manufacture the dutiable final products also. The Revenues appeal No. E/3191/09-EX is against the order-in-original No. 20-22/D-I/09 dated 31/08/09 dropping the proceedings initiated by issue of three show cause notices for demand of allegedly wrongly availed Cenvat credit of Rs. 14,04,09,663/- (opening balance of Cenvat credit as on 01/03/08) Rs. 27,43,50,554/- [Cenvat credit availed during March 2008 to July 2008], Rs. 24,74,15,042/- [Cenvat credit availed during July 2008 to December 2008] and Rs. 11,13,07,967/- [Cenvat credit availed during December 2008 to May 2009].
7. Cash refund under rule 5 of the Cenvat credit Rules, 2004 was claimed of a part of the above Cenvat credit which could not be utilized for payment of duty on the clearances of flavouring material. Seven such refund claims were rejected by the Jurisdictional Assistant Commissioner, but on appeals being filed against the Assistant Commissioners order to Commissioner (Appeals), the Commissioner (Appeals) vide order-in-appeal No. 62/CE/DLH/10 dated 22/03/10 reversed the Assistant Commissioners orders and thereby allowed these refund claims totaling Rs. 10,27,09,915/-. The second appeal No. E/1027/2010 by the Revenue is against the order-in-appeal dated 22/03/10 of the Commissioner (Appeals).
8. The common issues involved in these appeals are as under:-
(i) Whether in the background of the fact that when out of Cenvat credit availed Menthol, De-terpenated Fractionated Mentha Oil (DFMO), De-Mentholized Oil (DMO), Mentha Oil and Mentha Piperita Oil, the final products Menthol Crystals/Menthol BP/USP and flavouring materials like Peppermint Oil, rectified spearmint oil etc. are made and when w.e.f. 01/03/08, only Menthol, BP/USP and Menthol Crystals, BP/USP became fully and unconditionally exempt from duty but other final product flavouring materials remained dutiable, the provisions of Rule 11 (3) (ii) of Cenvat Credit Rules, 2004 would be applicable and whether in accordance with the provisions of this sub-rule, there was requirement for payment amount equal to the Cenvat credit involved on the inputs in stock, inputs in process and inputs contained in the finished products in stock and lapse of the balance credit, if any, remaining ?
(ii) whether in the background of the fact that when Menthol Crystals BP/USP and Menthol BP/USP manufactured from the duty paid Menthol, De-Mentholized Oil (DMO), De-terpenated Fractionated Mentha Oil (DFMO), Mentha Piperita Oil (MPO) had been exported out of India under bond under Rule 19 of the Central Excise Rules, 2002, the provisions of Rule 6 (1) of Cenvat Credit Rules, 2004 would be applicable.
8.1 Coming to the first issue, sub-Rule (3) of Rule 11 of Cenvat Credit Rules, 2004 is reproduced below :-
11 (3) : A manufacturer or producer of a final product shall be required to pay an amount equivalent to the Cenvat credit, if any taken by him in respect of inputs received for use in the manufacture of the said final product and is lying in stock or in process or is contained in the final product lying in stock, if, -
(i) he opts for exemption from whole of the duty of excise leviable on the said final product manufactured or produced by him under a notification issued under Section 5A of the Act; or
(ii) The said final product has been exempted absolutely under Section 5A of the Act, and after deducting the said amount from the balance of Cenvat credit, if any, lying in this credit, the balance, if any still remaining shall lapse and shall not be allowed to be utilized for payment of duty on any other final product whether cleared for home consumption or for export, or for payment of service tax on any output service, whether provided in India or exported. 8.1.1 From a plain reading of the above sub-Rule, it is clear that this rule applies, if (a) one or more duty paid inputs in respect of which Cenvat credit has been taken, have been used in or in relation to manufacture of a final product which up to a certain date was dutiable and (b) that final product has become fully exempt from duty whether on option basis or absolutely from a particular date.
In the above situation, if any stock of Cenvat credit availed inputs is lying in stock or is in process or is contained in the final products lying in the stock as on the date of exemption, the Cenvat credit involved in respect of such inputs lying in stock or in process or contained in final product lying in the stock would be required to be paid by the manufacturer, which he can do by deducting that amount from the Cenvat credit balance, if any, lying in his credit and the credit balance, if still left, shall lapse and the same cannot be utilized for payment of duty on any final product whether cleared for home consumption or for export or for payment of service tax on any output service whether provided in India or exported. Thus, in accordance with the provisions of this sub-rule, the balance credit shall lapse and cannot be utilized for any purpose whether for payment of duty on the domestic clearances or for payment of duty on the goods cleared for export. The question now arises as to whether this sub-rule would be applicable when there is more than one final product being manufactured from the same common Cenvat credit availed inputs and only one of the final products has become fully exempt. From the language of this rule, it is clear that this sub-rule is applicable only when one or more Cenvat credit availed inputs or input services have been used or in relation to manufacture of a final product which has become fully exempted under a notification issued under Section 5A (1) of the Central Excise Act. If the words the said final product are taken to include its plural, then also, for application of this rule, it would be necessary that all the final products become fully exempt from duty. This rule would, have no application if from common Cenvat credit availed inputs or input services more than one final product are manufactured and out of these final products, only one final product has become fully exempt and other final products have remained dutiable. In such a situation, the credit in balance can still be utilized for payment of duty on the final products which have continued to be dutiable, as in terms of Rule 3 (4) (a) of the Cenvat Credit Rules, 2004, Cenvat credit can be utilized for payment of excise duty on any final product and Section 11 (3) cannot be given an interpretation which is in conflict with the provisions of Rule 3 (4). Therefore, on this point, we agree with the finding of the learned Commissioner that Rule 11 (3) does not apply to this case.
8.2 As regards the second issue, the provisions of sub-rule (1) of Rule 6 of the Cenvat credit Rule, 2004 are subject to the provision of sub-rule (6) of this rule and in the circumstances enumerated in various clauses of Rule 6(6), the provisions of sub-rule (1), (2) and (3) of Rule 6 are not applicable. The thrust of the Revenues case is that the word excisable goods in sub-Rule (6) of Rule 6 of the Cenvat Credit Rules, 2002 should be read as dutiable goods and accordingly, the provisions of this sub-rule would not be applicable to the fully exempted finished products which have been exported out of India, and the Cenvat credit in respect of the same would not be admissible in accordance with the provisions of sub-Rule (1) of Rule 6. In other words, the contention of the Revenue is that when some finished products which are fully exempt from duty are exported out of India under bond/LUT, under Rule 19 of the Central Excise Rule, 2002, the provisions of sub-Rule (6) of Rule 6 would not be applicable and accordingly, the provision of sub-Rule (1), (2), (3) of Rule 6 would become applicable and, therefore, the Cenvat credit in respect of inputs used in or in relation to manufacture of such final product would not be admissible in accordance with the provisions of sub-Rule (1). It is also the case of the Revenue that when some goods are fully exempt from duty, the furnishing of bond or LUT in respect of their export is an empty and meaningless formality and export of such goods cannot be said to be the export without payment of duty under bond or letter of undertaking and, therefore, the provisions of Rule 6 (1) or Rule 6 (2) readwith Rule 6 (3) of the Cenvat Credit Rule, 2004, would be applicable. We find that these points raised by the Revenue had been considered at length by Honble Bombay High Court in the case of Repro India Ltd. vs. Union of India (supra). In the case of Repro India Ltd. (supra) the appellant had manufactured the dutiable goods i.e. packaged software and stationery books and exempted goods i.e. printed books. The appellant had taken Cenvat credit of duty paid on the inputs used in the manufacture of packaged software as well as stationery books and printed books. The printed books (exempted goods) had been exported out of India under bond, while packaged software and stationery books had been cleared for home consumption on payment of duty. The assessee utilized the input duty credit for payment of duty on packaged software and stationery books and claimed cash refund under Rule 5 of the Cenvat Credit Rules, 2004 of the credit the attributable to the printed books exported out of India which could not be utilized for payment of duty on domestic clearances of the stationery books and packaged software. The jurisdictional Assistant Commissioner informed the assessee that they cannot clear the fully exempted goods under bond and that in respect of the printed books cleared under bond for export, they would be required to pay an amount equal to 10% of the sale price in terms of the provisions of rule 6(2) read with Rule 6 (3) (b) of the Cenvat Credit Rules, 2004. It is this direction of the Assistant Commissioner, which was challenged by the assessee before Honble Bombay High Court. Honble Bombay High Court in this case, after analyzing the provisions of sub-Rule (6) of Rule 6 of the Cenvat Credit Rules, 2004 and also the provisions of Rule 19 of the Central Excise Rules, 2002, held that the term excisable goods in Rule 6 (6) of the Cenvat Credit Rules, 2004 is vide enough to include both dutiable as well as exempted goods and that the Cenvat credit in respect of inputs used in the manufacture of fully and exempt goods which had been exported under bond/letter of undertaking would be admissible and, as such, the provisions of Rule 6 (6) (v) of the Cenvat Credit Rules, 2004 would be applicable. Honble High Court in this case also held that the bar provided under Rule 6 (1) and the liability created under Rule 6 (3) (b) readwith Rule 6 (2) of the Cenvat Credit Rules, 2004 would not be attracted, when the finished goods even if fully exempt from duty, are exported out of India and this bar would be applicable only if the assessee does not export the exempted goods. Accordingly, Honble Bombay High Court held that in respect of clearances for export of the printed books which were fully exempt from duty, the provisions of Rule 6 (2) readwith Rule 6 (3) (b) of the Cenvat Credit Rules would not be applicable. It is seen that same view has been taken by Honble Himachal Pradesh High Court in its judgment in the case of Drish Shoes Ltd. 2010 (254) E.L.T. 417 (H.P.) and also by Honble Delhi High Court in the case of CCE, Delhi I vs. Punjab Stainless Steel (supra). In the case of Punjab Stainless Steel, Honble High Court held in clear terms that manufacturer is entitled for Cenvat credit in respect of inputs used in exported goods, whether exempted or dutiable and the assessee has option either to claim drawback or to claim cash refund of the credit under Rule 5 of the Cenvat Credit Rules, 2004. It is seen that in the respondents own case decided by Honble Bombay High Court in the judgment reported in 2011 (270) E.L.T. 212 (Bom.), where in respect of the export of pipermint oil which had been cleared for export on payment of duty by debiting the same in the Cenvat credit account, the rebate of the duty so paid had been disallowed by the Assistant Commissioner, but the Commissioner (Appeals) had reversed the Assistant Commissioners order, Honble Bombay High Court rejected the Revenues appeal against the Commissioner (Appeals)s order observing that even when the exempted products viz. Menthol crystals had been exported under bond without payment of duty, the case is covered under Rule 6 (6) (v) of the Cenvat Credit Rules, 2004 and accordingly the Rule 6 (1) to 6 (4) ibid would not be applicable and the assessee would be entitled to the credit of the duty paid on the inputs and that the disallowance of the input credit is applicable only when the fully exempted final products made out of Cenvat credit availed inputs are cleared for home consumption. In this judgment Honble Bombay High Court also observed that when Menthol crystals even if fully exempt from duty had been exported out of India, the Cenvat credit availed in respect of the inputs used in the manufacture of menthol crystals could be used in terms of the provisions of Rule 5 of the Cenvat Credit Rules, for payment of duty on the dutiable final products pipermint oil cleared for export and hence the assessee would be entitled to rebate of duty paid on the exported piperment oil as per the provisions of Rule 18 of the Central Excise Rules, 2002. In this judgment also Honble Bombay High Court relied upon its earlier judgment in the case of Repro India Ltd. vs. Union of India (supra). SLP filed by the Government to the Apex court against this judgment of the Bombay High Court had been dismissed vide judgment dated 04/04/2012. In view of judgments of three High Courts on the issue involved one of which has been affirmed by the Apex Court, the Revenues plea that in Rule 6 (6) (v), the words excisable goods should be interpreted as dutiable goods cannot be accepted.
8.2.2 In this regard another plea of the Revenue is that by Notification No. 24/10-CE (NT) dated 26/05/10 the Notification No. 42/01-CE (NT) dated 26/06/01 was amended and as per the amended notification, the export of excisable goods which are chargeable to nil rate of duty or are wholly exempt from duty, other than goods cleared by 100% EOU, are not be allowed under the Notification No. 42/01-CE (NT) and that this amendment has to be treated as of clarificatory nature and therefore, a retrospective amendment. We do not accept this plea Notification No. 42/01-CE (NT) dated 26/06/01 issued under Rule 19 (3) of the Central Excise Rules, 2002 prescribes the conditions to be observed and the procedure to be followed for the purpose of export under bond without payment of duty under Rule 19 (1) of the Central Excise Rules, 2002. The amendment made to Notification No. 42/01-CE (NT) dated 26/06/01 by the amending notification dated 26/05/10 restricts the scope of Rule 19 and after this amendment, the goods which are fully exempt from duty or are chargeable to nil rate of duty, cannot be exported under bond or LUT under Rule 19 and accordingly, if for manufacture of such exempted goods, any duty paid inputs have been used, the Cenvat credit of the duty paid on the inputs cannot be availed. Since this amendment adversely affects the manufacturers, the same cannot be given retrospective effect.
9. In view of the above discussion, neither the provisions of Rule 11 (3) of Cenvat Credit Rules, 2004, nor the provisions of Rule 6 (1) ibid are applicable to this case. As regards the Departments plea that the respondent cannot take cash refund of accumulated Cenvat credit under Rule 5 of Cenvat Credit Rules, 2004 as well as rebate of duty paid out of the same credit, since in this case, under Rule 5 of Cenvat credit Rules, 2004, prohibition is on claiming input duty drawback under Customs and Central Excise duties Drawback Rules, 1995 or the equivalent benefit of input duty rebate under Rule 18 of the Central Excise Rules and in this case, neither the input duty drawback under the Drawback Rules nor the input duty rebate under Rule 18 of the Central Excise Rules, 2002 has been claimed, this plea is not valid.
10. Another plea of the Revenue is that the Cenvat credit, in question, had been availed by the respondent on the basis of the invoices issued by the four suppliers of Jammu M/s Ambika International, M/s Fine Aromatics, M/s Jay Ambey Aromatics and M/s Shiva Mint Industries all of whom were availing the benefit of Notification No. 56/02-CE and that the transactions between the respondent and the above-mentioned four suppliers are bogus transactions and that the respondent have received only the invoices without supply of any goods. It is also mentioned by the learned Counsel for the Revenue, that in this regard while show cause notices dated 29/10/12 and 04/10/12 have been issued to the Jammu units for recovery of the refund received by them under Notification No. 56/02-CE, show cause notice dated 07/03/13 has been issued to the respondent for recovery of the Cenvat credit availed by them on the basis of the invoices issued by the above-mentioned four Jammu units.
10.1 However, it is seen that in none of the present show cause notices, which are the subject matter of present appeals, either this allegation has been made or any evidence in this regard has been discussed. In the three show cause notices which culminated in the order-in-original No. 20-22/D-I/2009 dated 31/03/09 passed by the Commissioner, there is not even a whisper of this allegation. Even in the written submissions wherein this plea has been made, no evidence in support of this allegation has been disclosed. In any case, such an evidence is yet to be evaluated, as the show cause notices issued to M/s Ambika International, M/s Fine Aromatics, M/s Jay Ambey Aromatics and M/s Shiva Mint Industries and also to the respondent have not been adjudicated. As held by the Apex court in the case of CCE, Nagpur vs. Ballarpur Industries Ltd. reported in 2007 (215) E.L.T. 489 (S.C.), show cause notice is the foundation in the matter of levy and recovery of duty, penalty and interest and if a particular Rule has not been invoked in the show cause notice, it would not be open to the Commissioner to invoke that Rule. Thus, in accordance with the ratio of this judgment, if some allegations based on certain evidence have not been made in the show cause notice, the Adjudicating Authority or the Appellate Authority cannot travel beyond the show cause notice and decide the matter by taking into account those allegations which had not been mentioned in the show cause notice. Therefore, in our view, the present matter cannot be decided on the basis of allegations made in the subsequent show cause notice dated 07/03/13 issued to the respondent and the show cause notices dated 29/10/12 and 04/10/12 issued to the respondent suppliers M/s Ambika International, M/s Fine Aromatics, M/s Jay Ambey Aromatics and M/s Shiva Mint Industries. Those Show Cause Notices have to be adjudicated by the Commissioner independently and cant be referred to or introduced in the present proceedings. Accordingly, we have laid down the law, based upon the allegations made in the present Show Cause Notice, as the subsequent notices are not the subject matter of the present appeals. The consequence of the adjudication proceedings of the subsequent show cause notices would follow, in accordance with law. So far as the present appeals of the Revenue are concerned, the same fail.
11. The appeals stand disposed of as above.
(Pronounced in open court on 27/11/2014.) (Archana Wadhwa) Member (Judicial) (Rakesh Kumar) Member (Technical) PK ??
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