Commissioner of C. Ex. and Customs vs Foram Glazed Tiles

Sonia Gokani, J.—The department Appellant in the present tax appeal has sought to raise following questions of law before this Court for determination:

(a) Whether from the facts and circumstances of the present case, the Tribunal is right in holding that the Respondent is eligible to claim benefit of Notification No. 6/2002-C.E., dated 1-3-2002 as amended, by reversing the credit of duty paid on "inputs" after utilizing the same for clearance of ceramic tiles though the Respondent has violated the mandatory condition of the said notification?

(b) Whether the Tribunal is right in law to accept the reversal of an entry of or repayment of the amount of CENVAT credit availed of by an Assessee after the Assessee is caught by the department acting in contravention of the Act and Rules applicable in the fact of the case?

(c) Whether the Tribunal is right in law in holding that though at the time of clearance of goods the Assessee was not entitled to get the benefit of the exemption notification, subsequent conduct of the Assessee of reversing the entry at the time of getting caught would exempt it from the liability of paying full duty?

Brief facts of the appeal are as follows:

2.1 Present Respondent and other manufacturers engaged in manufacture of Ceramic glazed tiles availed the benefit of concessional rate of duty under Sr. No. 235 of Notification No. 6/02-C.E., dated 1-3-2002 as amended by Notification No. 45/2003-C.E., dated 14-5-2001 in respect of clearance of final product. The same was not available to them including to the present Respondent as averred by the department on the ground that the benefit made available by way of exemption was conditional this wise that only if no credit of duty paid on the inputs used in or in relation to the manufacturer of such ceramic tiles is taken under Rule 3 and Rule 11 of Cenvat Credit Rules, 2002/2004, this exemption under the notification can be claimed. And as Respondent had already taken credit of duty paid on input, consequentially under the notification, concessional rate of duties would not be available to him and to other manufacturers.

2.2 Department having found that this double benefit is already taken by the Respondent while clearing goods had deemed it appropriate to issue show cause notice on him on dated 1-6-2007. It is vital to note that the Respondent, before this notice, had already reversed credit availed by him on input.

2.3 This show cause notice was contested before the Commissioner, Central Excise, Ahmedabad-III and the Commissioner vide his order-in-original dated 28-5-2009, in detail examined admissibility of exemption notification in a situation when the condition of notification allegedly have been contravened, when he had already availed CENVAT credit on the inputs used in the manufacture of ceramic tiles. And it upheld the demand made under the show cause notice.

2.4 This order-in-original was carried in appeal before CESTAT, which upheld the claim of Assessee manufacturer by its order dated 12-11-2009, which is challenged here.

We have heard extensively learned Counsel Shri Darshan Parikh for the Appellant department who has strenuously and vehemently submitted before this Court that present appeal and other such appeals arising from common order of Commissioner is in favour of such kind of Respondents who have unscrupulously availed benefit of the said notification and paid less percentage of duty which is 8%, instead of 16% payable, knowing fully well that they had since already availed CENVAT credit on input made available to them, this benefit was not meant for them. He also urged before the Court that since this was a deliberate and intentional act of enrichment to defeat revenue, the order of the CESTAT requires to be scrutinised in detail and deserves to be set aside. He though admitted that reversal of Cenvat credit was done prior to the issuance of show cause notice. But that would not wipe of unjustifiable action of the Respondent according to the learned Counsel.

On perusal of the record, more particularly, the order in original of Commissioner and that of CESTAT where it has not sustained order of Commissioner, for the reasons to be followed here-in-after, this Court is of the opinion that with no question of law having arisen in this case coupled with the fact that there being no perversity at all in the order passed by the CESTAT, this appeal does not require to be allowed.

If one looks at the content of show cause notice dated 1-6-2007 issued to the Respondent where demand u/s 11A, 11AB and 11C of differential duty (central excise duty) interest and penalty respectively, under the Central Excise Act is raised, the same states that the exemption contained in the said notification is conditional and is available subject to fulfillment of the condition which stipulates that no credit of the duty paid on the inputs used in or in relation to the manufacture of such ceramic tiles ought to have been taken under Rule 3 or Rule 11 of the CENVAT Credit Rules 2002.

Rule 3 of the Cenvat Credits Rules, 2004 provides for the provisions under which the credit of various duties would be admissible to a manufacturer and as to how this credit can be utilised for payment of duty whereas Rule 11 of the said Rules speaks of deemed credit provisions.

Order-in-original states categorically that for allowing concessional rate of duty under the said notification, since the basic condition is about non-availment of CENVAT credit on the inputs used in or in relation to manufacture of such ceramic tiles, it is impermissible in this case by holding that "Once the credit is taken on any inputs which are brought inside the factory for being used either directly or indirectly in the manufacture of the final product, ceramic tiles or the credit is so availed on the inputs which are used in the manufacture of Capital goods withing the factory of production, the exemption under the aforesaid notification is inadmissible. The CENVAT credit has been availed by the manufacturers for fabrication and manufacture of capital goods."

The Commissioner has disallowed the claim of the manufacturer by further observing that "the question is to decide the demand for different central excise duty from the manufacturers who have misled the Revenue by taking CENVAT credit on the inputs deliberately under the category of capital goods." The Commissioner also when confronted with judgment of the Apex Court in case of Chandrapur Magnet Wires (P) Ltd., Nagpur Vs. Collector of Central Excise, Central Excise Collectorate, Nagpur, did not agree to apply the ratio laid down in the said case of manufacturers by distinguishing the same on facts and chose to uphold the demand proposed in the show cause notice.

This when was challenged before CESTAT, it reversed the above order of Commissioner by observing as follows:

We have considered the submissions. Even though, today only stay petitions are listed, we note that the issue involved is only the question whether subsequent reversal of credit would amount to non-availment of credit and the Appellants are eligible for benefit of exemption Notification. Since the decision of the Hon''ble High Court (cited supra) cover the issue and also the decision of the Tribunal is in the identical case, we consider it appropriate to waive the requirement of pre-deposit, allow the stay petitions and allow all the appeals with consequential relief to the Appellants, subject to the condition that the Appellants would not claim refund of the credit and interest already debited by them. We also take note that all the Appellants, who have not debited the credit, will be debiting within one or two days.

The Tribunal has essentially relied on judgment of Gujarat High Court in case of the Commissioner of Central Excise Vs. Ashima Dyecot Ltd., wherein it is held that reversal of credit even if it is subsequent to clearance or even after credit taken, would amount to non-availment of credit.

It would be apt to mention at this stage that fervent contention is raised by learned Counsel attempting to distinguish the facts of present case, from what was there in that case when this Court held in Ashima Dyecot Ltd. (supra), emphasizing that reversal in that case was prior to clearance of goods, which is not a case here. Here reversal was much after this was detected, albeit before the issuance of show cause notice. On examining this contention, along with the discussion found in the order and judgment of both the Commissioner, Central Excise and that of CESTAT as well as from the record of the case, we are of the opinion that the present Respondent had reversed the CENVAT credit prior to issuance of show cause notice and while accepting said reversal, no challenge is made by the department to this act of Respondent. Admittedly, on non-availment of the credit, manufacturer is entitled to the benefits emanating from notification which is of payment of reduced duty of 8% interest instead of payment of 16% duty. We therefore, are broadly in agreement with the conclusion in the decision of the CESTAT where it has held that issue is broadly covered by the decision of this Court in case of Ashima Dyecot Ltd. (supra).

In the said premise, that there being no perversity nor any unreasonableness in the order passed by CESTAT, the same requires to be sustained and with no question of law much-less substantial question of law having arisen in this case, appeal of the department deserves to be dismissed. Ordered accordingly.