M/S. Krah Woory India Pvt. Ltd vs Commissioner Of GST & Central Excise

M. Ajit Kumar, Member (T)

These appeals are filed by the appellant against Order in Appeal No. 61 and 62 dated 27.2.2023 passed by the Commissioner of GST & Central Excise (Appeals), Chennai (impugned orders).

Brief facts of the case of both the cases are that the appellants imported capital goods under the EPCG scheme vide Notification No. 97/2004-Cus dated 17.9.2004. They were not able to fulfill the export obligation under the said Notification. Therefore, they paid import duty including CVD and SAD on the said imports and claimed refund of the CVD and SAD refund of CENVAT Credit of Rs. 2,78,703/- vide letter dated 23.8.21 and Rs. 6,80,807/- vide letter dated 23.8.21 as they could not be taken as credit in the GST regime. The refund sanctioning authority rejected the refund claim on the ground that the import conditions were not fulfilled. Aggrieved against the said order, the appellants preferred appeals before Commissioner (Appeals) who vide the impugned orders upheld the order passed by the refund sanctioning authority and rejected the refund on the ground that refund is available to only goods used as inputs and not as capital goods. Hence these appeals.

2.1 No cross-objection has been filed by the respondent department.

Shri S. Jayanth, learned consultant appeared for the appellant and Shri Harendra Singh Pal, learned Assistant Commissioner (AR) appeared for the department.

3.1 Shri S. Jayanth, learned Consultant submitted that the appellant imported capital goods under EPCG scheme. As export obligation could not be fulfilled, the appellant paid Customs duties viz., BCD, CVD and SAD along with interest thereon. If the Central Excise levy had been continued in respect of the goods manufactured by the Tax payer, he would lawfully have been entitled to avail the duties of ADC and SAD paid as CENVAT Credit and utilize them for payment of duties of Excise on their finished products as the said capital goods were used in the manufacture of finished goods removed for home consumption. However, on the date of import, these things could not have been envisaged by anyone. Precisely for this reason the transitional provisions have been introduced in the GST statute to allow refund of CENVAT credits eventually accrued which was not brought forward under TRAN-1 to be refunded in cash under Section 142(3) and 142(6) of the CGST Act, 2007 and also the saving provisions in Section 174(2) (C ) of the CGT ACT 2017. The Learned Commissioner has rejected their appeals by citing Sec 11B(2)(c) of the Central Excise Act, 1944 which states, that refund of credit of duty paid is eligible on excisable goods used as inputs in accordance with the rules made, or any notification issued, under this Act. It was his opinion that only duty paid on excisable goods which are inputs alone are eligible and duty paid on capital goods cannot be refunded. However, LAA has not disputed about the eligibility to CENVAT credit under the existing law viz., CCR,2004. LAA failed to consider that CENVAT Credit Rules, 2004 itself was issued under notification 23/2004 CE (NT) dated 10-09-2004 as amended wherein as per Rule 3(1) (vii) and (vii a) duties paid on goods imported is allowed to be availed and utilized as CENVAT Credit. This apart, no factual allegation/evidence has been laid against the appellant that the capital goods were not at all used for manufacture and removal of finished goods for home consumption by the appellant. The non-consideration of Section 142(3)/143(6) and Section 174(2) (c) of the CGST Act 2017 in proper perspective and the issue of accrued vested interest on the CENVAT credit as stated in Siddharth Enterprises Vs Nodal Officer reported in 2019(29) GSTL 664(Guj) has led to rejection of the appeal with revenue bias. He hence prayed that the Appeals may be allowed and justice rendered.

3.2 The learned Assistant Commissioner (AR) stated on behalf of Revenue that the appellants imported capital goods under the EPCG scheme but they were not able to fulfill the export obligation under the said Notification. Claiming input credit upon failure to meet export obligations would defeat the very purpose of the EPCG scheme. Further refund of credit of duty paid is eligible on excisable goods used as inputs in accordance with the rules made, or any notification issued, under this Act. Duty paid on excisable goods which are inputs alone are eligible and duty paid on capital goods cannot be refunded. He stated that the matter was covered by the Final Order No 40098/2020 dated 05/02/2020, of the Hon’ble CESTAT in M/s Servo Packaging Ltd Vs The Commissioner Of Central Excise, Puducherry [2020-VIL-72-CESTAT-CE]. He hence prayed that the impugned order may be upheld and the appeal rejected.

I have carefully gone through the written and oral submissions of the rival parties. I find that this is a case where the Appellant imported capital goods under the EPCG scheme and were unable to fulfill the export obligation under the said Notification. Therefore, they paid import duty including CVD and SAD on the said imports and claimed refund of the same taken as CENVAT Credit in their books under Section 142 (3) of the C.G.S.T. Act, 2017, as they could not be taken as credit in the GST regime.

The reason given for rejecting the appeal given at para 8 & 9 of the impugned order is very cryptic. The same is reproduced below.

“8. It is evidently clear that as per the above provisions only duty paid on excisable goods which are inputs alone are eligible and duty paid on capital goods cannot be refunded. In the instant case, the appellant imported capital goods under EPCG scheme which is not eligible to be refunded as discussed above.

In the view of the foregoing the impugned order rejecting the refund, need not be interfered with and the appeal fails.”

CENVAT Credit Rules 2004 includes capital goods in the definition of ‘inputs’. The reason and legal provisions why the learned Commissioner (Appeals) came to the conclusion that duty paid on excisable goods which are inputs alone are eligible and duty paid on capital goods cannot be refunded, is not discussed and is hence not clear. It is also noted that the Original Authority had not disputed the eligibility to CENVAT credit for the capital goods under CCR,2004. The impugned order is hence based on a new ground. A rounded examination of the issue has not been done. The reasons given by the Original Authority and the judgment of M/s Servo Packaging ltd (supra) do not form a part of the impugned order into which the OIO has merged. The Hon’ble Apex Court in State Bank of India and Another Vs Ajay Kumar Sood [Civil Appeal No 5305 of 2022, dated August 16, 2022] stated as under:

A judgment culminates in a conclusion. But its content represents the basis for the conclusion. A judgment is hence a manifestation of reason. The reasons provide the basis of the view which the decision maker has espoused, of the balances which have been drawn. That is why reasons are crucial to the legitimacy of a judge's work. They provide an insight into judicial analysis, explaining to the reader why what is written has been written. . . . . At a secondary level, reasons furnish the basis for challenging a judicial outcome in a higher forum. The validity of the decision is tested by the underlying content and reasons.”

Hence while brevity is the ingredient of a good judgment the greatest hallmark is clarity and the citing of legal provisions which led to the decision. I do not find any legal grounds in the impugned order to have rejected the claim for refund. The appellant on the other hand has made out a strong case in their favour as per their averments stated above.

The outcome of the discussions is that the impugned orders are set aside and the appeals are allowed with consequential relief, as per law. The appeals are disposed of accordingly.