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[Cites 4, Cited by 0]

Gujarat High Court

The Commissioner, Cgst And Central ... vs M/S Welspun India Ltd. on 6 February, 2020

Author: Bhargav D. Karia

Bench: J.B.Pardiwala, Bhargav D. Karia

        C/TAXAP/775/2019                                       ORDER



        IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
                  R/TAX APPEAL NO. 775 of 2019
==========================================================
        THE COMMISSIONER, CGST AND CENTRAL EXCISE
                            Versus
                    M/S WELSPUN INDIA LTD.
==========================================================
Appearance:
MR ANKIT SHAH(6371) for the Appellant(s) No. 1
MR HARDIK P MODH(5344) for the Opponent(s) No. 1
==========================================================
 CORAM: HONOURABLE MR.JUSTICE J.B.PARDIWALA
        and
        HONOURABLE MR. JUSTICE BHARGAV D. KARIA
                   Date : 06/02/2020
                    ORAL ORDER

(PER : HONOURABLE MR. JUSTICE BHARGAV D. KARIA)

1. This Tax Appeal is filed under Section 35G of the Central Excise Act, 1944 (for short the "Act­ 1944") at the instance of Revenue and it is directed against the order dated 03.01.2019 passed by the Customs, Excise & Service Tax Appellate Tribunal, West Zone Bench, Ahmedabad (for short the "Tribunal) in Appeal No. E/21/2012­DB.

2. The appellant has proposed the following questions of law as substantial questions of law for consideration of this Court:­ "I. Whether, in the context of the facts and in the circumstances of the case, the CESTAT was justified in holding that exemption under Notification No.30/2004­CE is not absolutee but conditional one, therefore, the provision of Rule 11(3) of the Cenvat Credit Rules, 2004, which provides for lapsing of credit lying unutilised shall not apply.


     II.    Whether, in the        context of the facts and in
     the circumstances of          the case, the CESTAT was
     justified in holding         that the lapsing of cenvat
     credit provided under        Rule 11(3) related to goods


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         C/TAXAP/775/2019                                                ORDER



     already exported shall not apply.

III. Whether, in the context of the facts and in the circumstances of the case, the CESTAT was justified in holding that as per Clause (ii) of Rule 11(3) of Cenvat Credit Rules, 2004, credit related to capital goods and input services shall not lapse, therefore, the unutilized cenvat credit lying in balance related to capital goods and input service cannot be demanded."

3. The brief facts of the case are that the respondent­assessee is registered under the provisions of the Act­1944 for the manufacturing and clearance of terry towel and bed sheet items falling under Chapter Heading 63 of the Central Tariff Act, 1985. The respondent­assessee was not availing the area based exemption notification NO.39/2001­CE dated 31.07.2001 since October­2007. The assessee was procuring the inputs/input servvices on payment of duty and availing the CENVAT credit in terms of Rule 3 of the CENVAT Credit Rules, 2004. The assessee was exporting around 85% to 90% of their entire clearance during the period from October­2007 to March­2008. Thereafter, the assessee availed the benefit of Notification No.29/2004 dated 09.07.2004 and paid Central Excise duty after availment of Cenvat Credit of Excise Duty paid on input and capital goods and service tax on input service. With effect from 01.04.2008, the respondent­assessee decided to avail the bneefit of Notification No.30/2004­CE dated 09.07.2004 for clearance of goods from home consumption and avail benefit of drawback for export of goods. The assessee, therefore, wrote letter dated 01.04.2008 to the Assistant Commissioner of Central Page 2 of 10 Downloaded on : Sun Jun 14 07:26:21 IST 2020 C/TAXAP/775/2019 ORDER Excise for obtaining benefit of Notification No.30/200­CE dated 09.07.2004. It also paid duty equivalent to Cenvat Credit availed on input using manufacture of final product and lying in stock in process and containing final products. The assessee also debited Rs.4,85,12,181/­ from total balance of Cenvat Credit of Rs.14,12,16,832/­. The assessee filed refund claim on 05.09.2008 and 15.04.2008 in respect of inputs contained in exported final products under Rule 5 of Cenvat Credit Rules. The refund claim was rejected by the Assistant Commissioner vide order dated 24.04.2009 for the reason that the assessee manufactured and cleared the goods under area based exemption notification. However, the appellate authority, vide order dated 26.10.2009, allowed the appeal by remanding the proceedings to the adjudicating authority for de novo consideration. The Assistant Commissioner, vide order dated 27.01.2010, sanctioned the refund claim for the period from October­2007 to March­2008 under Rule 5 of the Cenvat Credit Rules read with Notification No.5/2006­CE (NT) dated 14.03.2006. The said order of refund issued in favour of the respondent­assesseee has attained the finality, as the same is not challenged in the appeal by the Department.

4. It appears that the Audit party of the Central Excise undertook the central excise audit of the respondent­assessee and raised objection regarding non­eligibility of CENVAT credit lying unutilized and carried forward for the financial year 2008­09. Such Audit objection has resulted into the issuance of Page 3 of 10 Downloaded on : Sun Jun 14 07:26:21 IST 2020 C/TAXAP/775/2019 ORDER show­cause notice dated 06.05.2009 proposing reversal of credit demanding interest and penalty.

5. The adjudicating authority, vide order dated 28.09.2011, confirmed the demand of cenvat credit of Rs.9,27,04,652/­ under Rule 14 of the Rule read with Section 11A of the Act alongwith interest and imposed equal amount of penalty. The adjudicating authority also confirmed reversal of credit on capital goods and input service. Being aggrieved by the said order, the respondent­assessee went in Appeal before the Tribunal.

6. The Tribunal, considered the fact that the refund claim of the respondent­assessee has achieved finality, and therefore, question of application of Rule 11(3) of the Cenvat Credit Rules­2004 would not come into play, as the respondent­assessee cannot be asked to reverse the credit on the goods which are already exported. The Tribunal has observed as under:­ "5. We have carefully considered the submissions made by both the sides and perused the records, we find that by the impugned order, the adjducating authority has demanded the cenvat credit lying in balance as on 01.04.2008 invoking Rule 11(3) of Cenvat Credit Rules, 2004, which reads as under:­ "(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,­ Page 4 of 10 Downloaded on : Sun Jun 14 07:26:21 IST 2020 C/TAXAP/775/2019 ORDER he opts for exemption from whole of the duty of excise leviable on the said final product

(i) manufactured or produced by him 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, and after deducting the said amount from the balance of CENVAT credit, if any, lying in his credit, the balance, if any, still shall lapse and shall not be allowed to be utilized

(ii) 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."

From the plain reading of the above Rule (3) of Rule 11, it is observed that the manufacturer, if he opts for exemption from whole of the duty of excise, he is required to pay an amount equivalent to the cenvat credit of inputs received and used in manufacture of said final product and it is lying in stock or in process or is contain in the final product lying in stock if the exemption is absolute and after deducting the same, if any, amount from the balance of cenvat credit 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 export. As per facts of the present case, though on 01.04.2008 and unutilized cenvat credit of Rs.9,64,05,566/­ was lying but out of the same amount of Rs.8,57,60,788/­ was related to the inputs used in the manufacture of exported goods. The appellant claimed refund in the manufacture of exported goods. The appellant claimed refund under Rule 5 of the said amount and the department has sactionied that refund, the issue of refund has attained finality. Therefore, as regard this amount of Rs.8,57,60,788/­ which included in overall demand amount has been allowed by the department as refund. In the such case demand for this particular amount cannot be raised otherwise it will amount to review of refund sanction order. Moreover, Rule 6(6) of Cenvat Credit Rules, 2004 provides for allowing the Cenvat credit in respect of inputs used in the goods exported. Te said Rule is Page 5 of 10 Downloaded on : Sun Jun 14 07:26:21 IST 2020 C/TAXAP/775/2019 ORDER reproduced below:­ "(6) The provisions of sub­rules (1), (2), (3) and (4) shall not be applicable in case the excisable goods removed without payment of duty are either­ cleared to a unit in a special economic zone; or to a developer of a special economic zone for

(i) their authorized operations ; or cleared to a hundred per cent. export­oriented

(ii) undertaking; or cleared to a unit in an Electronic Hardware (iii Technology Park or Software Technology Park; or ) supplied to the United Nations or an international organization for their official use or supplied to projects funded by them, on which exemption of duty is available under notification of the Government of India in the

(iv) Ministry of Finance (Department of Revenue) No.108/95­Central Excise, dated the 28th August, 1995, number G. S R. 602 (E), dated the 28th August, 1995; or cleared for export under bond in terms of the

(v) provisions of the Central Excise Rules, 2002; or gold or silver falling within Chapter 71 of the said First Schedule, arising in the course of

(vi) manufacture of copper or zinc by smelting; or.

all goods which are exempt from the duties of customs leviable under the First Schedule to the Customs Tariff Act, 1975 (51 of 1975) and the (vii additional duty leviable under sub­section (1) ) of section 3 of the said Customs Tariff Act when imported into India and are supplied,­

(a) against International Competitive Bidding; or

(b) to a power project from which power supply has been tied up through tariff based competitive bidding; or Page 6 of 10 Downloaded on : Sun Jun 14 07:26:21 IST 2020 C/TAXAP/775/2019 ORDER

(c) to a power project awarded to a developer through tariff based competitive bidding, in terms of notification No. 6/2006­Central Excise, dated the 1st March, 2006.

6. From the above Rule, it can be seen that in sub Rule (1), (2), (3) and (4), the credit in certain circumstances, including the circumstance where the final product is exempted, the credit is not available, however, exception is provided under sub Rule (6) particularly in Clause (V) thereof, that if the goods are cleared for export under bond and terms of Provision of Central Excise Rules, 2002, the provision of Sub Rule (1), (2), (3) and (4) shall not apply that means even if the final product is exempted, the cenvat credit of inputs used in the manufacture of export goods is available. In view Rule 6(6), the lapsing of cenvat credit provided under Rule 11(3) related to goods already exported shall not apply, otherwise Rule 6(6) will become redundant. The legislature has not specifically provided the lapsing of cenvat credit which was allowed in terms of Rule 6(6). The cenvat credit in respect of inputs used in export goods has been allowed as refund under Rule 5, Rule 5 is also independent from Rule 11(3). In the present case, since the cenvat credit lying unutilized as on 0104.2008 is attributed to the inputs used in the goods already exported before 01.04.2008, the refund was already accrued and admittedly sanctioned to the appellant. Rule 5 also does not provide exception with reference to Rule 11 of Cenvat Credit Rules, 2004, for this reason also the objective of Rule cannot be defeated by invoking Rule 11 of the Cenvat Credit Rules, 2004. It has been held in various judgments cited by the Ld.Counsel i.e. Drish Shoes Ltd and Rero India Ltd (supra), even though the export goods is non dutiable against the export cenvat credit on inputs used in such export goods is admissible and refund of the same is also admissible under Rule 5 of the Cenvat Credit Rules, 2004. Therefore,the adjudicating authority ignoring all the provision of Rule 6(6), demanded cenvat credit lying in balance as on 01.04.2008 invoking Rule 11(3) in isolation which is absolutely illegal and incorrect. As regard unutilized cenvat credit as on Page 7 of 10 Downloaded on : Sun Jun 14 07:26:21 IST 2020 C/TAXAP/775/2019 ORDER 01.04.2008 amounting to Rs.69,43,864/­, it is related to input service credit and capital goods. From the plain reading of Rule 11(3), it is clear that the proviion of reversal of the credit is provided only in respect of inputs and not on input service and capital goods. The provision for lapsing or credit provided in Clause (ii) of Rule 11(3), the principle of ejusdem generis shall appply, accordingly, credit related to capital goods and input services shall not lapse, therefore, the unitulized cenvat credit lying in balance related to capital goods and input service cannot be demanded.

7. Without prejudice to our above observation, we also find that as per Rule 11(3), there are two limbs thereof. As per sub Rule (3) Clause (I), if an assessee opts for any notification (absolute or conditional), he is required to reverse the credit, in respect of input lying in stock; input in process and input contained in finished goods which is lying in stock as on date of opting exemption. However, as per Clause (ii) of Rule 11(3), the balance of credit after reversal as per Rule 11(3)

(i), the said balance shall lapse only in a case where the exemption so opted for exemption Notification No.30/2004­CE which is not absolute but conditional one, therefore, the provision of Clause (ii) of Rule 11(3), which provides for lapsing of credit lying unutillzed, shall not apply, For this reason also, entire demand is clearly not sustainable."

7. Mr.Ankit Shah, learned advocate appearing for the appellant submitted that the Tribunal has committed an error by not considering the fact that once the respondent­assessee has opted for exemption under Section 5A of the Act­1944 then cenvat credit has to be reversed as per the Rule 11(3) of the Rules­2004. It was also submitted that Cenvat credit carried forward by exercising option to avail exemption under Notification No.30/04­CE was rejected by the Department and as such the entire amount of Page 8 of 10 Downloaded on : Sun Jun 14 07:26:21 IST 2020 C/TAXAP/775/2019 ORDER cenvat credit lying in the balance after deducting the amount of Cenvat credit attributable; to the inputs ought to have lapsed and the assessee having failed to make the entry to this effect in their Cenvat credit amount and having carried forward this amount, have rendered the said Cenvat credit amount liable to recovery as proposed in the Show Cause Notice. Therefore, he submitted that the adjudicating authority has rightly passed the order of recovery of Rs.9,64,05,566/­, as the said amount is lying the cenvat credit of the respondent­assessee and was not reversed.

8. On the other hand, Mr.Jintendra Mothvani, learned advocate with Mr.Hardik Modh, learned advocate appearing for the respondent­assessee submitted that the Tribunal has rightly arrived at finding of fact that once the respondent­assessee has already exported the goods and the refund is granted to the respondent­assessee under Rule 5 of the Cenvat Credit Rules­2004 which has achieved finality then provision of Section 11(3) of the Cenvat Credit Rules­2004 could not have been invoked against the respondent­assessee. It was submitted that Clause (V) of sub­rule 6 of Rule 6 of Cenvat Credit Rules­2004 provides that, if the goods are cleared for the export under bond and terms of provision of Central Excise Rules, 2002, the provision of Sub Rule (1), (2), (3) and (4) would not apply. In the circumstances, if the final product is exempted, the cenvat credit of inputs used in the manufacture of export goods is available. It was therefore submitted Page 9 of 10 Downloaded on : Sun Jun 14 07:26:21 IST 2020 C/TAXAP/775/2019 ORDER that in view of Rule 6(6), the lapsing of cenvat credit provided under Rule 11(3) related to goods already exported shall not apply, otherwise Rule 6(6) will become redundant.

9. Having heard learned advocates for the respective parties and having gone through the reasonings given by the Tribunal, we are in agreement with the findings of facts given by the Tribunal as quoted herein above.

10. Further, once the Tribunal has come to the conclusion that refund which was granted to the respondent­assessee has become final in view of Rule 6(6) of the Rules­2004, lapsing of cenvat credit provided under Rule 11(3) related to goods already exported would not be applicable. Therefore, invocation of Rule 11(3) of the Rules­2004 is rightly held to be not applicable in the facts of the case.

11. In view of the foregoing reasons, in our opinion, the questions of law proposed by Revenue can not be termed as substantial questions of law.

The appeal, therefore, fails and is accordingly dismissed.

(J. B. PARDIWALA, J) (BHARGAV D. KARIA, J) GIRISH Page 10 of 10 Downloaded on : Sun Jun 14 07:26:21 IST 2020