Gujarat High Court
M/S Mohit Industries Ltd vs Union Of India on 21 February, 2023
Author: Sonia Gokani
Bench: Sonia Gokani
C/SCA/9678/2021 CAV JUDGMENT DATED: 21/02/2023
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/SPECIAL CIVIL APPLICATION NO. 9678 of 2021
FOR APPROVAL AND SIGNATURE:
HONOURABLE THE CHIEF JUSTICE MS. JUSTICE SONIA GOKANI
and
HONOURABLE MS. JUSTICE NISHA M. THAKORE
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1 Whether Reporters of Local Papers may be allowed
to see the judgment ? YES
2 To be referred to the Reporter or not ?
YES
3 Whether their Lordships wish to see the fair copy
of the judgment ? NO
4 Whether this case involves a substantial question
of law as to the interpretation of the Constitution NO
of India or any order made thereunder ?
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M/S MOHIT INDUSTRIES LTD.
Versus
UNION OF INDIA
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Appearance:
MR KARANKUMAR J SUKAWALA(10263) for the Petitioner(s) No. 1,2
MR MUKUND KUMAR CHOUHAN(10259) for the Petitioner(s) No. 1,2
MR NIKUNT K RAVAL(5558) for the Respondent(s) No. 3,4
NOTICE SERVED BY DS for the Respondent(s) No. 1,2
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CORAM:HONOURABLE THE CHIEF JUSTICE MS. JUSTICE
SONIA GOKANI
and
HONOURABLE MS. JUSTICE NISHA M. THAKORE
Date : 21/02/2023
CAV JUDGMENT
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C/SCA/9678/2021 CAV JUDGMENT DATED: 21/02/2023 (PER : HONOURABLE THE CHIEF JUSTICE MS. JUSTICE SONIA GOKANI)
1. This is a petition preferred by the petitioner who has two factories one at Kim, District Surat and second at Masat, Silvassa. The petitioner is engaged in the business of manufacture of polyester yarn, falling under chapter 5402 of Central Excise Tariff Act, 1985. Both the factories of petitioner had separate Central Excise Registration number. The factories of the petitioner were running prior to the date 09.07.2004. The petitioner also availed Central Value Added Tax (CENVAT) Credit of duty paid on input and capital goods on one hand and on receipt at factory, and on the other hand, paying Central Excise duty on Finished Goods on clearance from factory. On 09.07.2004, petitioner had accumulated amount of CENVAT credit in his statutory record for both the factories separately.
1.1. The Central Government has issued two notifications for Textile Industry for levy of duty. First one was Number 29/2004-CE dated 09.07.2004, manufacture of polyester yarn would need to pay duty on finished goods and he would be also eligible to avail CENVAT credit of duty paid on inputs. In Page 2 of 34 Downloaded on : Wed Feb 22 20:52:40 IST 2023 C/SCA/9678/2021 CAV JUDGMENT DATED: 21/02/2023 second Notification No. 30/2004-CE dated 09.07.2004, manufacturer of polyester yarn will be exempt from payment of duty on finished goods with the condition that no CENVAT credit of duty paid on input would be availed. 1.2. As averred in the petition, the petitioner exported finished goods from both the factories, on the payment of duty and filed the rebate claim with Respondent No. 3 and Respondent No. 4. This was rejected on various grounds. The legal grounds, based on which rebate claims were rejected, were decided in his favour in separate proceedings by the Commissioner (Appeals) and Tribunal. According to the petitioner, during personal hearing, the copy of order was submitted to the Principal Commissioner (RA), Additional Secretary to the Government of India. However, after the change of adjudicating authority, he did not provide opportunity of fresh hearing and did not follow the principle of natural justice. The Principal Commissioner (RA) also rejected the appeals without following the principle of judicial discipline and hence, the present petition is preferred questioning the breach of principle of natural justice. Page 3 of 34 Downloaded on : Wed Feb 22 20:52:40 IST 2023 C/SCA/9678/2021 CAV JUDGMENT DATED: 21/02/2023
2. The chronological events if are considered, the two notifications, as mentioned hereinabove, 30/2004 dated 09.07.2004 and 29/2004 of the self same date were issued. One was for the conditional exemption of duty provided to the manufacturer of textile and textile article and another for manufacturing of textile and textile item for payment of duty on finished goods and availment of CENVAT Credit of duty paid on inputs.
2.1. The Board issued the circular on 28.07.2004 and clarified that notifications no. 29/2004 and 30/2004 both can be availed simultaneously provided the books of accounts are kept separately.
2.2. A show cause notice was issued dated 22.04.2009 for utilization of the sum of Rs. 99,929/- out of the lapsed credit. According to the petitioner, on 31.03.2010, the Finished Goods were exported from Masat, Silvassa factory on payment of duty under Notification 29/2004-CE on dated 09.07.2004 and filed rebate claim with department.
2.3. On 08.04.2011, a show cause notice was issued by the Page 4 of 34 Downloaded on : Wed Feb 22 20:52:40 IST 2023 C/SCA/9678/2021 CAV JUDGMENT DATED: 21/02/2023 Joint Assistant Commissioner to reject rebate claim for the Masat, Silvassa factory. On 27.02.2012, the Joint Assistant Commissioner issued the order-in-original and rejected rebate claim for Masat, Silvassa, factory. On 08.11.2012, the Commissioner (Appeals) rejected the appeal against order of Joint Assistant Commissioner for rebate claim of Masat, Silvassa factory.
2.4. The petitioner shifted the factory from Masat, Silvassa to Kim, Surat along with plant & machinery and stock and also transferred balance amount of CENVAT Credit Rs. 1,58,73,511/-. Therefore a show cause notice was issued on 01.11.2013 by the Assistant Commissioner since the CENVAT Credit lying in the record of Masat, Silvassa factory was transferred to the CENVAT Credit record of Kim, Surat factory.
2.5. After adjudication, Commissioner confirmed the demand and passed the order-in-original on 06.03.2014, in between, the show cause notice on 21.10.2013 came to be issued for demanding Rs. 43,41,820/- which was used from accumulated CENVAT Credit. The Commissioner (Appeals), Surat rejected Page 5 of 34 Downloaded on : Wed Feb 22 20:52:40 IST 2023 C/SCA/9678/2021 CAV JUDGMENT DATED: 21/02/2023 the Order-in-Appeal by order dated 23.10.2013 for utilization of Rs. 99,929/- out of the lapsed Credit. On 30.10.2013, the Commissioner (Appeals), Vapi passed order and held that petitioner had maintained separate records. 2.6. On 01.11.2013, the show cause notice was issued by Commissioner for transfer of CENVAT Credit Rs 1,58,73,511/- from Masat, Silvassa factory to Kim, Surat factory. On 18.11.2013, the show cause notice was issued for rejection of rebate claim for Kim, Surat factory. A show cause notice came to be issued on 23.01.2014 by Joint Assistant Commissioner for rejection of the rebate claim of goods exported from Kim, Surat factory.
2.7. On 06.03.2014, the order-in-original was passed by Commissioner and confirmed the demand of Rs 1,58,73,511/-. On 07.05.2014, the order came to be passed by the Joint Assistant Commissioner, Surat rejecting the rebate claim of export made from Kim, Surat factory. This was challenged before the Joint Commissioner and on 31.12.2014 and it confirmed the demand of Rs.43,41,820/-.
Page 6 of 34 Downloaded on : Wed Feb 22 20:52:40 IST 2023 C/SCA/9678/2021 CAV JUDGMENT DATED: 21/02/2023 2.8. When challenged before the Tribunal, it allowed the appeal and held that unutilized credit can be utilized for subsequent clearance and the petitioner had correctly utilized the amount of Rs.99,929/-. The Commissioner (Appeals), on 03.06.2015 passed the order in appeal and rejected both the appeals filed against the denial of rebate claim. 2.9. On 15.01.2018, the Commissioner (Appeals), Surat confirmed the demand of Rs.43,41,820/-. On 12.07.2018, the Tribunal passed the order and confirmed the transfer of credit from Masat, Silvassa factory to Kim, Surat Factory to be legally correct and remanded the matter back for verification of the amount.
2.10. On 19.09.2019, the Principal Commissioner (RA), Mumbai had called for personal hearing and the petitioner submitted all the orders passed by the higher authorities. However, no order was passed by the Principal Commissioner after the passing of one year of personal hearing. The Commissioner, Surat on 29.09.2020 passed the order and held that transfer of CENVAT credit amount from Masat, Silvassa to Kim, Surat is legally correct.
Page 7 of 34 Downloaded on : Wed Feb 22 20:52:40 IST 2023 C/SCA/9678/2021 CAV JUDGMENT DATED: 21/02/2023 2.11. On 04.11.2020, the petitioner requested Principal Commissioner (RA) to pass the order because personal hearing was completed long ago. On 03.12.2020 a personal hearing letter was supplied to the petitioner by the Principal Commissioner (RA) showing that the personal hearing was provided to the Commissioner only and not to the petitioner. 2.12. On 21.01.2021, the Principal Commissioner (RA) passed ex-parte order and rejected the appeals. The objections were raised by the petitioner by letter dated 31.03.2021 for ex- parte order when authority changed after conducting personal hearing. The petitioner never waived his right before the new authority. The Principal Commissioner (RA) wrote letter dated 08.04.2021 to the petitioner and stated that personal hearing was provided and copy of personal hearing also was supplied, however, it was petitioner who had vide letter dated 09.09.2019 and again vide letter dated 04.11.2020 and 10.11.2020 has requested to pass order. Therefore, has waived for personal hearing.
2.13. The petitioner, therefore, has approached this Court Page 8 of 34 Downloaded on : Wed Feb 22 20:52:40 IST 2023 C/SCA/9678/2021 CAV JUDGMENT DATED: 21/02/2023 aggrieved by the fact that denial of rebate claim is double demanded and particularly when no show cause notice is issued for demand of CENVAT credit wrongly carried forward. It is his emphasis that show cause notice has been issued for accumulated CENVAT credit and therefore, if the rebate claim is denied on the utilization of that amount, after denial of rebate claim, again the amount of credit needs to be allowed. It is a case of double demand by not sanctioning the rebate claim and not allowing to restore the CENVAT credit amount which has been utilized.
3. The prayers sought are as follow:-
"A. Your Lordship may be pleased to admit this Petition.
B. Your lordship may be pleased to allow this petition.
C. Your lordship may be pleased to issue writ of Mandamus or any other appropriate writ, and to quash the impugned order No. 29-30-31/2021-CX (WZ)/ASRA/Mumbai dated 21/01/2021 passed by the Respondent No. 2 and enclosed herewith and marked as Annexure- 'Z'.
D. Your Lordship consequently may direct the Respondent no. 3 and Respondent no. 4 to sanction of rebate claim.
E. Your Lordship, to direct the Respondent no. 3 and Respondent no. 4 to grant interest for the delayed period of sanction of rebate claim.
Page 9 of 34 Downloaded on : Wed Feb 22 20:52:40 IST 2023 C/SCA/9678/2021 CAV JUDGMENT DATED: 21/02/2023 F. Your lordship may be pleased to grant such other further reliefs that may be deemed fit and proper in the interest of justice in favour of our petition."
4. Notice came to be issued by this Court [Coram:Hon'ble the Chief Justice Mr.Vikram Nath (as His Lordship then was) & Mr.Biren Vaishnav, J] on 08.07.2021.
5. The affidavit-in-reply is filed by the Assistant Commissioner of CGST and Central Excise on behalf of the respondent No.3 by denying all the averments and the contentions raised.
5.1. It is not disputed that the Notification No.30/2004-CE dated 09.07.2004 has been issued under Section 5A of the Central Excise Act and it exempts the excisable goods manufactured by the petitioner i.e. textured yarn from whole of the duty of excise leviable thereon. This would mean that the exemption will apply only when the total balance of CENVAT credit is reversed and no credit of input or capital goods is taken after 09.07.2004. Moreover, as per the Notification No.29/2004 the manufacturer can avail CENVAT credit on inputs or capital goods and pay the duty on Page 10 of 34 Downloaded on : Wed Feb 22 20:52:40 IST 2023 C/SCA/9678/2021 CAV JUDGMENT DATED: 21/02/2023 clearance of finished goods as specified in the table against the chapter heading and nowhere it is provided that the balance credit is required to be reversed, but, it does state that the CENVAT credit can be availed on inputs used for production of dutiable finished goods and credit can be utilized to pay the duty.
5.2. It is further contended that secondly Rule 11(3) of CENVAT Credit Rules, 2004 provides that the manufacturer opts for exemption from whole of the duty of excise leviable on the final product manufactured and produced by him under a notification issued under Section 5A or the said final product has been exempted absolutely under Section 5A and after deducting the said amount from balance of CENVAT credit, if any lying in his credit, the balance shall lapse and shall not be allowed to be utilized for payment of duty.
5.3. The goods were conditionally exempted of the petitioner under Notification No.30/2004, which would apply only to the cases of absolute exemption, according to the respondent, is not correct. Sub-rules (1) and (2) of Rule 11(3) shall need to be read together and the provision of sub-rule (2) shall also apply to sub-rule (1) where manufacturer opts for exemption Page 11 of 34 Downloaded on : Wed Feb 22 20:52:40 IST 2023 C/SCA/9678/2021 CAV JUDGMENT DATED: 21/02/2023 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.
5.4. According to the respondent, the petitioner had opted for exemption from whole of the duty under Notification No.30/2004-CE issued under Section 5A, hence, the provisions of Rule 11(3)(2) are applicable to the present case. It is thus contended that both the Notifications No.29/2004 and 30/2004 are independent notifications and there is no restriction on availing both simultaneously. However, the manufacturer should maintain separate books of accounts for goods availing Notification No.29/2004 and for the goods availing Notification No.30/2004. There is nothing on the record which proves that the petitioner maintained the separate books of accounts for goods availing both the said notifications.
5.5. It is the say of the respondent that petitioner's contention that simultaneous availment of Notifications No.29/2004 and 30/2004 both dated 09.07.2004 is permissible as per Circular 795/28/2004-CE dated 28.07.2004. It is further Page 12 of 34 Downloaded on : Wed Feb 22 20:52:40 IST 2023 C/SCA/9678/2021 CAV JUDGMENT DATED: 21/02/2023 the say of the respondent that any assessee when chooses for such simultaneous availment of these notifications, the credit in their balance after reversing the amount of CENVAT credit pertaining to input lying in stocks or in process or contained the final produce shall not lapse, is not a correct contention. 5.6. Rule 11(3) of the CENVAT credit Rules is emphasized upon to urge that it prescribed for lapsing of entire balance of CENVAT credit once the assessee opts for full exemption under the notification issued under Section 5A of the Central Excise Act. This Rule applies irrespective of whether the assessee simultaneously avails the benefits of some other notification or not. Rule 11(3) of the CENVAT Credit Rules, 2004 (hereinafter referred to as 'CCR') clearly describes that all the previous balance accrued legally will lapse even when the petitioner uses both notifications simultaneously. 5.7. According to the respondent, the petitioner opted and availed for the exemption under Notification No.30/2004-CE and after deducting duty involved in stocks CENVAT credit of Rs.1,33,58,225/- was lying in the balance in the record. Rule 11 (3) of the CCR inserted on 01.03.2007 vide Notification Page 13 of 34 Downloaded on : Wed Feb 22 20:52:40 IST 2023 C/SCA/9678/2021 CAV JUDGMENT DATED: 21/02/2023 No.10/2007 dated 01.03.2007 and since the petitioner availed the exemption under Notification No.30/2004 and CENVAT credit was lying in balance of the record as on 01.03.2007, the said balance of CENVAT credit automatically would lapse and cannot be allowed for utilization or introduction of provisons of Rule 11(3) of CCR.
5.8. It is contended further that the petitioner had paid the Central Excise Duty of Rs.3,14,598/- on the goods exported from the unutilized credit accumulated while opting for NIL rate of duty under Notification No.30/2004 dated 09.07.2004 instead of paying Central Excise Duty under Notification No.29/2004 from fresh credit. It appears that the petitioner had utilized the credit for payment of duty on goods exported, which had already lapsed after opting of exemption under notification. It was held that payment of duty made through lapsed credit cannot be treated as payment of duty and hence, rebate of duty was not admissible.
5.9. The petitioner was served the show cause notice by the Assistant Commissioner, Central Excise and Customs Division- II, Vapi (at Silvassa) on 08.04.2011 which was further upheld Page 14 of 34 Downloaded on : Wed Feb 22 20:52:40 IST 2023 C/SCA/9678/2021 CAV JUDGMENT DATED: 21/02/2023 by the Order-in-Original dated 27.02.2012 passed by the Assistant Commissioner, Central Excise and Customs, Division-II, Silvassa, Order-in-Appeal dated 08.11.2012 by the Commissioner (Appeals), Central Excise, Customs and S.Tax, Vapi and order dated 13.01.2021 passed by the Principal Commissioner (RA) and Ex-officio Additional Secretary to the Government of India.
5.10. It is denied that the Principal Commissioner (RA) passed an ex-parte order and violated the principle of natural justice. According to the respondent, communication issued by the Assistant Commissioner (RA), Mumbai, an opportunity of personal hearing was granted to the petitioner in respect of the Revision Application. In response, the Director of Mohit Industries Ltd. - petitioner Vide letter dated 09.09.2019 informed the Principal Commissioner (RA), Mumbai that they did not want any further person hearing and requested to pass the order considering the documents available on record, and hence, the Principal Commissioner (RA) passed the order on 21.01.2021 after considering all aspects. Therefore, the order impugned and findings of the Revisional Authority are legal and do not require any interference.
Page 15 of 34 Downloaded on : Wed Feb 22 20:52:40 IST 2023 C/SCA/9678/2021 CAV JUDGMENT DATED: 21/02/2023 5.11. All in all, it is urged that after insertion of sub-rule (3) of Rule 11 of the CENVAT credit Rules, 2004 w.e.f. 01.03.2007 as the petitioner availed total exemption on its final product during the particular period and as the duty paid from such lapsed CENVAT credit on the exported goods at a much later date since is not the payment of duty, therefore, the rebate claims have not been admitted. The rebate claim had been filed by the petitioner in pursuance of Rule 18 of Central Excise Rules, 2002 (hereinafter referred to as 'CER') which stipulates that the rebate shall be subject to such condition, limitation and fulfillment of such procedure as may be specified in the notification. The Central Government for operational limitation of Rule 18 issued notification No.19/2004 as amended wherein conditions, limitations and procedures are prescribed. The first and foremost condition for rebate of duty on export of goods is that the excisable goods shall be exported after payment of duty and petitioner had not paid the duty for the purpose of exportation of the goods.
5.12. The utilization of lapsed credit is a double loss to the Page 16 of 34 Downloaded on : Wed Feb 22 20:52:40 IST 2023 C/SCA/9678/2021 CAV JUDGMENT DATED: 21/02/2023 exchequer to the extent that the unit had not paid the Central Excise Duty on their finished goods by opting for the benefits under the Notification No.30/2004, but carried forward duty paid on inputs which, in turn, is consumed for manufacturing exempted goods in terms of Notification No.30/2004-CE. The intention of legislature for providing the credit on input was that the said credit would be utilized for payment of Central Excise Duty on finished goods in order to reduce the cascading effect of duty. Thus, the double benefit to the unit i.e. nonpayment of Central Excise Duty on finished goods and encashment of accumulated credit of input used in the manufacture of exempted goods through the rebate of the duty is not permissible in terms of scheme of CENVAT credit particularly under provision of Rule 11 (3)(2) of CCR. 5.13. It is the say of the respondent that rebate under Rule 18 can only be granted of Excise Duty paid on the goods exported. It has relied on the judgment of Bombay High Court in case of Union of India vs. Rainbow Silks [2011 (274) ELT 510 (Bombay)] to urge further that the CENVAT credit balance available in the account was to lapse at the time of opting for complete exemption on their final product. The Page 17 of 34 Downloaded on : Wed Feb 22 20:52:40 IST 2023 C/SCA/9678/2021 CAV JUDGMENT DATED: 21/02/2023 respondent unit has chosen not to adhere to the requirement of the Rules and continued to retain a large amount of such CENVAT credit. Therefore, it is open to the manufacturer to pay the duties through CENVAT credit account by debit entry. However, if any inadmissible CENVAT credit which should correctly have lapsed is continued to be retained and if such amount is utilized for the purpose of payment of the Central Excise Duty, it would mean that the appropriate duty has not been paid and the consequences of non-payment of duty were followed.
6. Affidavit-in-rejoinder on behalf of the petitioner is filed contending therein that for the transfer of CENVAT credit amount of Rs.1,58,73,511/- for the transfer of factory with plant and machinery along with stock from Silvassa to Surat factory, nothing has been stated in the affidavit-in-reply. The amount of CENVAT credit was utilized for payment of excise duty at the time of export of finished goods. The notice for the wrong transfer of the CENVAT credit was issued on 01.11.2013 which was finally allowed by the Commissioner in Order-in-Original on 29.09.2020. The rebate claim of Surat factory was rejected on the ground of wrong transfer of Page 18 of 34 Downloaded on : Wed Feb 22 20:52:40 IST 2023 C/SCA/9678/2021 CAV JUDGMENT DATED: 21/02/2023 credit, which was finally decided by the Commissioner as legal transfer of CENVAT credit. On this important point, nothing has been submitted in the affidavit-in-reply. The order dated 29.09.2020 has not been submitted before the Principal Commissioner (RA) because ex-parte order was passed without following principle of natural justice and without providing fresh opportunity of hearing when Adjudicating Authority changed.
6.1. It is further the say of the petitioner that wrong interpretation is made of provision of Rule 11(3) of the CENVAT Credit Rules. The petitioner was availing Notifications No.29/2004 and 30/2004 simultaneously and maintaining separate record as confirmed by the Commissioner (Appeals) in his Order-in-Appeal. According to the petitioner, the polyester filament yarn (final product) was never absolutely exempted under Notification 30/2004-CE, hence, provision of Rule 11(3)(2) is not applicable to the present case. The petitioner had not opted for exemption from whole of the duty or finished goods. Notification 30/2004-CE is conditional exemption Notification, hence, provision of Rule 11(3) of CCR is not applicable at all in the present case and Page 19 of 34 Downloaded on : Wed Feb 22 20:52:40 IST 2023 C/SCA/9678/2021 CAV JUDGMENT DATED: 21/02/2023 CESTAT has held it in its order No.A/10867-10868/2019 that the provisions of Rule 11(3) of CCR,2004 is not applicable. 6.2. The CESTAT in the case of the petitioner had allowed utilization of carrying forward CENVAT credit. The petitioner had also received the rebate for export of goods prior to the period of dispute in show cause notice. The Principal Commissioner (RA) passed the order dated 21.01.2021 without providing the opportunity of personal hearing. Hence, the adjudication process was in gross violation of principle of natural justice. Further, the petitioner was unable to submit the fresh order dated 29.09.2020 passed by the Commissioner in his favour and CENVAT credit was allowed by this order after first hearing was held on 17.09.2019. The respondent No.2 passed the order dated 21.01.2021 without following the principle of natural justice, which is required to be set aside and remanded back with the direction to pass fresh order by following the principle of natural justice.
7. This Court has heard extensively the learned counsels on both the sides, who along the line of their pleadings, argued extensively.
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8. The revisional order of the office of Principal Commissioner (RA) and Ex-Officio Additional Secretary to the Government of India if is looked at, this is a Revision Application under Section 35 (EE) of the Central Excise Act against the Order-in-Appeal dated 08.11.2012 passed by the Commissioner (Appeals), Central Excise, Customs and Service Tax and Order-in-Appeal dated 03.06.2015 passed by the Commissioner (Appeals)-II, Central Excise, Customs and Service Tax, Vadodara. These revision applications preferred by the petitioner against the Order-in-Appeal dated 08.11.2012 passed by the Commissioner (Appeals), Central Excise, Vapi and the order dated 03.06.2015 passed by the Commissioner (Appeals)-II, Central Excise and Service Tax, Vadodara have been threadbare examined by the Revisional Authority.
8.1 The applicant preferred the Revision Application on the ground that the entire accumulated CENVAT credit, as per the allegation, is not illegal. The allegation is limited to the accumulated CENVAT credit lying in balance prior to 01.03.2010 having lapsed during the time of opting Central Excise Exemption Notification No.30/2004-CE dated Page 21 of 34 Downloaded on : Wed Feb 22 20:52:40 IST 2023 C/SCA/9678/2021 CAV JUDGMENT DATED: 21/02/2023 09.07.2004.
8.2. According to the petitioner, the Commissioner (Appeals) travelled beyond the scope of show cause notice. It appears that the applicant had exported polyester texturised filament yarn (finished goods) under Notification No.29/2004 dated 09.07.2004 which was manufactured from partially oriented yarn and availed CENVAT credit in the month of March, 2010. These finished goods were exported in March, 2010 and April, 2010 on payment of duty. The applicant was running the factory prior to 09.07.2004 when Notification No.30/2004 came into force therefore, it had legally availed CENVAT credit in their RG-23A Part-II Register more than Rs.1 Crore. The applicant started to maintain separate record under Notifications No.29 and 30 both dated 09.07.2004, according to the Board Circular No.795/28/2004 dated 28.07.2004. Therefore, it is the case of the petitioner that the CENVAT credit legally availed by the applicant upto 09.07.2004 can be carried forward in their RG-23A Part-II Register maintained under the Notification No.29/2004-CE dated 09.07.2004. There is no condition in Notification No.30/2004 that when this notification would be availed, the legally availed CENVAT Page 22 of 34 Downloaded on : Wed Feb 22 20:52:40 IST 2023 C/SCA/9678/2021 CAV JUDGMENT DATED: 21/02/2023 credit would be lapsed.
8.3. It is undisputed that the applicants are availing the Notifications No.29 and 30 of 2004 by maintaining the separate records and filing monthly ER-1 returns with Range Officer and no question was raised by the department on availment and utilization of CENVAT credit till they file rebate claim for export in the month of July, 2010 under Rule 18 of the Central Excise Rules.
9. It emerges that the petitioner had taken fresh credit of duty paid on raw material by taking credit of the duty in RG 23A Part-II at the time of purchase of input (POY) from the period 11.03.2010 to 31.03.2010 for production of the final exported goods texturised yarn. For so doing, they utilized the fresh CENVAT credit from 11.03.2010 to 31.03.2010. For debiting duty at the time of removal of goods from the factory for export, it was apparent from RG 23A Part-II for the month of March, 2010 and April, 2010 and the record spoke for itself. According to the revisional authority, the allegation of the department that applicant had utilized the accumulated CENVAT credit of Rs.1 Crore lying balance in RG 23A Part-II Page 23 of 34 Downloaded on : Wed Feb 22 20:52:40 IST 2023 C/SCA/9678/2021 CAV JUDGMENT DATED: 21/02/2023 on 01.03.2010, is not sustainable.
9.1. The applicant physically exported the goods under ARE- 1 on payment of duty under Notification No.29/2004. It was his case that final remittance had been received by the applicant and in such circumstances, the rebate claim should not be held up by the department and for the delay period of sanction of rebate claim, interest should be provided under section 11BB of the Central Excise Act and CBEC Circular No.670/61/2002-CX dated 01.10.2002.
9.2. It is a matter of fact that from 09.07.2004 the applicant started to avail both the notifications simultaneously and kept separate record. The CBEC vide Circular No.795/28/2004-CX dated 28.07.2004 clarified that there is no restriction on availing both the notifications simultaneously. The CENVAT credit prior to 09.07.2004 was carried forward in the record maintained under Notification No.29/2004 and fresh CENVAT credit was availed and duty on finished goods was paid through this CENVAT Register. For any clearance of finished goods made under Notification No.30/2004, no CENVAT credit was availed on inputs and no duty was paid on the Page 24 of 34 Downloaded on : Wed Feb 22 20:52:40 IST 2023 C/SCA/9678/2021 CAV JUDGMENT DATED: 21/02/2023 finished goods manufactured from such inputs. It is, therefore, the case of the petitioner that accumulated amount of CENVAT credit cannot be declared nonest and it can be legally used for the payment of duty on finished goods for subsequent clearance. It is further the say that provisions of Rule 11 (3)(ii) are not applicable to the current case as their final product POY is not absolutely exempt under Section 5A of the Central Excise Act and it is liable to duty at the rate given under Notification No.29/2004-CE and hence, it is exported under the payment of duty. It is held that the right to avail CENVAT credit accrues as soon as the scheme is availed. The right to adjust the tax on final product accrues to the assessee on the date when they pay the tax on the raw material or the inputs and the right would continue until the facility availed they had to get worked out or until those goods exists as per the decision of the Apex Court in M/s.Eicher Motors Limited vs. Union of India, [(1999) 106 ELT 3 (SC)]. Relying on the CBEC Circular No.845 of 2007 dated 01.02.2007 wherein it is clarified that in case the credit taken on input used in manufacture of the said goods cleared under Notification No.14/2004 or Notification No.30/2004 has been reversed before utilization, it would amount to credit not Page 25 of 34 Downloaded on : Wed Feb 22 20:52:40 IST 2023 C/SCA/9678/2021 CAV JUDGMENT DATED: 21/02/2023 having been taken. It is the say of the petitioner that the applicant which has reversed the CENVAT credit involved in the stock of 31.07.2006 on 01.08.2006 and cleared the texturized yarn under Notification No.30/2004, the Board Circular does not prohibit the assessee to avail the Notification No.30/2004 and the balance amount in such eventuality of CENVAT credit cannot lapse hence, the serious challenge is made to the show cause notice.
9.3. As the plant from Silvassa along with stock and plant and machinery shifted to Kim plant and also transfered CENVAT credit of Rs.1,58,73,511/- during the month of November, 2012 under Rule 10 of the CENVAT Credit Rules and the CENVAT credit was legally earned by the petitioner of the Silvassa unit and transferred to Kim unit, according to it, the accumulated amount of CENVAT credit can be utilized by the applicant and there is no need to maintain a balance of Rs.2,92,22,736/- as stated in the impugned show cause notice. The provisions of 11 (3)(ii) of the CENVAT Credit Rules, as urged by the petitioner, would apply when the final product is absolutely exempt whereas the applicant's product - texturised yarn/ Grey fabrics are not absolutely exempted. Page 26 of 34 Downloaded on : Wed Feb 22 20:52:40 IST 2023 C/SCA/9678/2021 CAV JUDGMENT DATED: 21/02/2023 Under Section 5A of the Central Excise Act, the goods are liable to duty at the rate given under Notification No.29/2004- CE therefore, the provisions of 11(3)(ii) is not applicable in their case and therefore, it is exported under the payment of duty.
10. We notice that after detailed examination of sub-rule (3)
(i) and (ii) of Rule 11 of the CENVAT Credit Rules so also the Circular No.795 which allows the manufacture to avail both Notifications Nos.29 and 30 as well as considering various decisions, the revisional authority held that the applicant had opted for benefit of exemption notification continuously for years onwards after 09.07.2004. The CENVAT credit balance carried forward in the CENVAT account lapsed after insertion of sub-rule (3) of Rule 11 of the CENVAT Credit Rules w.e.f. 01.03.2007 since the applicant availed total exemption on all the final products during the aforesaid period and as such the duty paid from such lapsed CENVAT credit on the said exported goods at a much later date is not a payment of duty and therefore, the rebate claims were rightly held inadmissible by Commissioner (Appeals).
Page 27 of 34 Downloaded on : Wed Feb 22 20:52:40 IST 2023 C/SCA/9678/2021 CAV JUDGMENT DATED: 21/02/2023 10.1. While so holding it also had considered the insertion of sub-rule (3) to Rule 11 of the CENVAT Credit Rules vide Notification No.10/2007 dated 01.03.2007, which stipulates that if a manufacturer opts for exemption from whole of duty of excise leviable on the said final product under a notification issued under Section 5A of the Act or the said final product has been exempted absolutely under Section 5A of the Act, he shall be required to pay an amount equivalent to the CENVAT credit 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 the stock and after deducting the said amount from the balance of CENVAT credit, if any lying in its credit.
10.2. Sub-rule (3) of Rule 11 of the CENVAT Credit Rules inserted vide Notification No. 10-CE is interpreted by the revisional authority thus:-
"10. Sub-rule (3) to Rule 11 of Cenvat Credit Rules, 2004 was inserted vide Notification No. 10/2007-C.E. (N.T.), dated 1-3-2007 which reads as follows "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 Page 28 of 34 Downloaded on : Wed Feb 22 20:52:40 IST 2023 C/SCA/9678/2021 CAV JUDGMENT DATED: 21/02/2023 of inputs received for use in the manufacture of the said final product lying in stock, if
(i) he opts for exemption from whole of 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 his 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."
The sub-rule (3)(i) & (ii) of Rule 11 of Cenvat Credit Rules, 2004 clearly stipulates that if a manufacturer opts for exemption from whole of duty of excise leviable on the said final product under a Notification issued under Section 5A of the Act or the said final product has been exempted absolutely under Section 5A of the said Act, he shall be required to pay an amount equivalent to the Cenvat credit 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 the stock and after deducting the said amount from the balance of 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 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. The Notification No. 30/2004-C.E. provides for exemption from whole of duty and therefore Government finds that the excess Cenvat credit lying in balance as on 09.07.2004 should have lapsed as on 01.03.2007 Page 29 of 34 Downloaded on : Wed Feb 22 20:52:40 IST 2023 C/SCA/9678/2021 CAV JUDGMENT DATED: 21/02/2023 when sub- rule (3) of Rule 11 of the Cenvat Credit Rules, 2004 was introduced on a subsequent date. Government also observes that even if they had opted for the benefit of notification before 1.3.2007 they were required to expunge such credit when the rules were amended and the sub-rule (3) of Rule 11 of the Cenvat Credit Rules, 2004 was introduced. It is also on record that the Central Excise duty paid by the Applicant for the impugned exports for which they claimed rebate was paid out of such accumulated Cenvat Credit as on 09.07.2004 which should have lapsed w.e.f. 01.03.2007 as explained hereinabove. Since there was no accumulation of Cenvat credit validly in law, there was no question of duty being paid therefrom.
11. Government observes that the Applicant has relied upon Circular No.795/28/2004-CX dated 28.07.2004 which allows the manufacturer to avail both Notification Nos. 29/2004-C.E. and 30/2004-C.E. simultaneously. Even in this circular, at clarification to issue No. 2, it was clarified that for manufacturers who had pre-budget stock of inputs (or stock of semi finished or finished goods which contained inputs) on which credit had already been availed, he can continue to pay duty on the finished goods made therefrom at post budget rates or he can reverse the credit amount and avail full exemption on the finished goods. As the Applicant had opted benefit of Notification No.30/2004 CE from 09.07.2004 onwards and availed exemption from payment of duty they were required to reverse the entire Cenvat credit amount before opting for exemption under the said Notification.
13. Government further observes that though the Applicant had availed the Cenvat Credit accumulated for the period prior to 09.07.2004 when the Cenvat Credit rules were amended and the sub-rule (3) of Rule 11 of the Cenvat Credit Rules, 2004 was introduced, they opted for the exemption from payment from duty vide Notification No. 30/2004-CE continuously for the years onwards after 09.07.2004. Page 30 of 34 Downloaded on : Wed Feb 22 20:52:40 IST 2023 C/SCA/9678/2021 CAV JUDGMENT DATED: 21/02/2023 Hence, they were bound to follow the sub-rule (3) of Rule 11 of the Cenvat Credit Rules, 2004 which they failed to do."
10.3. It has distinguished the decision relied upon by the petitioner on its different set of facts:-
"15. In view of the forgoing discussion Government holds that as the Applicant had opted for benefit of exemption Notification No.30/2004 CE continuously for the years onwards after 09.07.2004, the Cenvat Credit Balance carried forward in their Cenvat accounts lapsed after insertion of sub-rule (3) of Rule
11 of Cenvat Credit Rules, 2004 w.e.f. 01.03.2007 since the Applicant availed total exemption on all their final products during the aforesaid period and as such the duty paid from such lapsed Cenvat Credit on the said exported goods at a much later date is not a payment of duty and therefore their rebate claims were rightly held inadmissible by the Commissioner(Appeals)."
10.4. These all depend entirely on the interpretation of sub- rules 3(i) and (ii) of Rule 11 of the CENVAT Credit Rules which obligates the manufacturer to pay an amount equivalent to the CENVAT credit taken by him in respect of inputs received for use in the manufacture of the final product if he has opted for exemption from whole of the duty of excise on the final product under the notification issued under Section 5A.
Page 31 of 34 Downloaded on : Wed Feb 22 20:52:40 IST 2023 C/SCA/9678/2021 CAV JUDGMENT DATED: 21/02/2023 10.5. Much emphasis has been laid on the Notification No.30/2004 which provides for the exemption from whole of the duty which led the revisional authority to interpret that excess CENVAT credit lying in balance as on 09.07.2004 should have lapsed on 01.03.2007 when sub-rule (3) of Rule 11 of the CENVAT Credit Rules was introduced on subsequent date, with the amendment of the Rules, even if the option was for seeking the benefit of notification before 01.03.2007 was given, with the amendment of the Rule and particularly, sub- rule 3 of Rule 11 of the CENVAT Credit Rules, whether was needed to be expunged and the central excise duty paid by the applicant for the expunged exports for which the claim rebate was paid out of such accumulated CENVAT credit as on 09.07.2004 which should have lapsed w.e.f. 01.03.2007 and whether there was any accumulation of the CENVAT credit validly under the law and where the petitioner could have paid the duty therefrom, were the questions which have been answered by the revisional authority.
11. Without entering into as to whether the interpretation made is in accordance with law or not, this Court notices that the revisional authority itself has made a note of the fact that Page 32 of 34 Downloaded on : Wed Feb 22 20:52:40 IST 2023 C/SCA/9678/2021 CAV JUDGMENT DATED: 21/02/2023 there was a change of the revisional authority. Relying on the written submissions of the petitioner of 09.09.2019, where it had requested to pass the order considering the documents available in record and they did not want any personal hearing since one such hearing had already taken place on 18.09.2019 has been relied upon to decide the matter on the strength of the record. Even if it is a matter of interpretation of the Rules, the Court is of the firm opinion that the authority which hears the matter should be deciding and not the other authority.
11.1. Assuming that the petitioner would have nothing else to further add, it is a serious violation of principles of natural justice, if the authority which heard the matter is different than the one which actually adjudicates. This serious lapse would surely lead this Court to interfere with the order of the revisional authority and quash the order for the parties to be relegated to the concerned revisional authority which shall give a personal hearing to the petitioner who will be also permitted to adduce further document or written submissions within a period of two weeks of the receipt of copy of this judgment and the authority concerned shall fix the date of Page 33 of 34 Downloaded on : Wed Feb 22 20:52:40 IST 2023 C/SCA/9678/2021 CAV JUDGMENT DATED: 21/02/2023 personal hearing through e-mail.
12. Accordingly, the petition is allowed to the aforesaid limited extent and disposed of accordingly.
(SONIA GOKANI,CJ) (NISHA M. THAKORE,J) Bhoomi Page 34 of 34 Downloaded on : Wed Feb 22 20:52:40 IST 2023