Nahar Industrial Enterprises vs Commissioner Of Central Excise

The appellant is in appeal against the impugned order wherein cenvat credit on capital goods during the period February 2009 to December 2009 amounting to Rs. 3,03,30,950/- has been denied to the appellant on the ground that their final product is exempted from payment of duty and as per Rule 6(4) of the Cenvat Credit Rules, 2004, No CENVAT credit shall be allowed on capital goods which are used exclusively in the manufacture of exempted goods or in providing exempted services, other than the final products which are exempt from the whole of duty of excise leviable thereon under any notification where exemption is granted based upon the value or quantity of clearances made in a financial year.

The brief facts of the case are that the appellant is engaged in the manufacture of Cotton Yarn and woven fabrics classifiable under Chapter heading No. 52.07, 52.08 and 55.12 respectively of Central Excise Tariff Act, 1985. Officers visited the unit of the appellant on 03.06.2009 and recorded the statement of Shri Sanjeev Banerjee, authorized signatory. He said that the appellant has opted to avail the benefits of exemption from payment of duty in terms of Notification No. 30/2004-CE dated 09.07.2004 vide their letter dated 08.09.2004 intimating that they would not avail credit on inputs and input services as their finished goods would be cleared under Notification No. 30/2004 on nil payment of duty. The appellant did not avail the facility of Cenvat Credit on the duty paid on inputs and input services as they have opted for exemption from payment of duty on their finished goods.

The yarn manufactured by the appellant was chargeable to central excise duty @8% (tariff rate) in terms of Chapter 52 of Central Excise Tariff Act, 1985. Of the two exemption Notifications, one had provided for partial exemption for some period and full exemption for some period while the second provided for full exemption for the entire period. The details are as follows.

(a) Notification No. 29/2004-CE dated 09.07.2004 granted partial exemption by which goods were manufactured by the appellant are chargeable to duty @4% for the period 7-7-2009 to 31-12-2009.

(b) For the period 1-2-2009 to 6-7-2009, this notification 29/2004-CE dated 9.7.2004 as amended by Notification No. 58/2008-CE provided unconditional full exemption.

(c) Notification No. 30/2004-CE dated 09.07.2004 granted full exemption from payment of central excise duty subject to the condition that no cenvat credit is taken on inputs consumed in the manufacture of the final products.

The appellant availed the benefit of exemption notification no. 30/2004-CE for the goods cleared for domestic sale and notification no. 29/2004-CE for the goods cleared for export. For the period February 2009 to 6 July 2009, since both notifications provided for full exemption, no duty was payable on the yarn manufactured by them.

The case of the revenue is that as the appellant opted to avail under Notification No. 30/2004-CE dated 09.07.2004, therefore, they were not required to pay any duty for such clearances and for the goods cleared under Notification No. 29/2004 for the period 1 February 2009 to 6 July 2009, no duty was payable. Therefore, any amount paid by them is only a deposit. In view of the full unconditional exemption, the appellant was not entitled to take CENVAT Credit of duty paid on capital goods in respect of cotton yarn plant and machinery on capital goods for the period 1-2-2009 to 6-7-2009 at all since, the cotton yarn was made unconditionally exempt from payment of central excise duty by Notification No. 58/2008-CE dated 07.12.2008 in terms of Section 5A (1A) of the Act. For the period 7.7.2009 to 31.12.2009, the two exemption notifications were simultaneously availed by the appellant claiming full exemption under 30/2004 for domestic clearances and partial exemption under 29/2004 for exports. It is the case of the Revenue that as per Board's Circular if the assessee wishes to avail two different notifications, then they have to maintain separate accounts which the appellant had not done. As the appellant have wrongly availed cenvat credit on capital goods used exclusively in the manufacture of exempted goods i.e. cotton yarn, the appellant is required to reverse the cenvat credit used on capital goods procured by them in contravention of Rule 6 (4) of Cenvat Credit Rules, 2004 read with Notification No. 58/2008-CE dated 07.12.2008. Therefore, a show cause notice was issued to the appellant for the period 01.02.2009 to 31.12.2009, to demand on account of denial of cenvat credit availed on capital goods. The adjudication took place and demand proposed in the show cause notice was confirmed alongwith interest and penalty was also imposed. Against the said order, the appellant is before us.

Learned Counsel for the appellant submits that the appellant is availing the benefit of both the notifications simultaneously i.e., Notification No. 29/2004-CE dated 09.07.2004 and 30/2004-CE dated 09.07.2004 i.e., they are paying duty @4% on some goods and are clearing some goods without payment of duty. The capital goods have been used in the manufacture of dutiable as well as exempted goods.

It is his submission that the law does not restrict the appellant to opt for a single notification for all its clearances; the appellant can choose any exemption notification which suits it for each type of clearances. The appellant is selling various types of yarns in domestic market after paying duty as applicable in terms of Notification No. 29/2004 dated 09.07.2004 and is also exporting goods after paying applicable Central Excise Duties. He produced the sample invoices on which duty has been paid during the impugned period by the appellant on their clearances. As the capital goods were not used exclusively for manufacture of exempted goods, cenvat credit on capital goods cannot be denied.

He further submits that the appellant's own case, for subsequent period, this issue has been decided in favour of the appellant by the adjudicating authority vide the Order-in-original No. 23-32/CE/CHD-II/2015 dated 24.08.2015 which order has been accepted by the department. Therefore, the issue has attained finality.

He further submits that a similar issue came up before this Tribunal in the case of WINSOME YARNS LTD. Vs. COMMR. OF C. EX. & SERVICE TAX, CHANDIGARH-II reported in 2015 (317) E.L.T. 479 (Tri. - Del.) wherein cenvat credit of capital goods has been allowed to the appellant. The same view has been taken by this Tribunal in the case of WINSOME YARNS LTD. Versus COMMR. OF C. EX. & S.T., CHANDIGARH-II cited as 2015 (318) E.L.T. 261 (Tri. - Del.) and the said orders have been accepted by the respondent.

He further submits that the case of the Revenue is that during the period 07.12.2008 to 06.07.2009, the rate of duty under Notification No. 29/2004 was reduced to Nil by way of Notification No. 58/2008-CE dated 07.12.2008 and the rate of 4% duty was restored only on 06.07.2009 by Notification No. 11/2009-CE and therefore, during 07.12.2008 to 06.07.2009 the appellant could not have paid any duty. This assertion of the Revenue is also incorrect because on 07.12.2008 itself, another Notification No. 59/2008-CE was issued, which provided for optional duty at the rate of 4% on the goods manufactured by the appellant. Therefore, during the said period also, there was option with the appellant to pay duty and the duty was actually paid on clearance of goods. He further submits that the Revenue has not denied the benefit of exemption Notification to the appellant and payment of duty has been accepted. Therefore, it cannot be said that capital goods were utilized for exclusively manufacture of exempted goods. He further submitted that no cenvat credit is available only when the goods are exclusively used in manufacture of exempted goods. The term 'exclusive' means without any exception as held by this Tribunal in the case of Supreme Industries Ltd. Vs. CCE - 2002 (149) ELT 659 (Tri. -Mum.). It is his submission that the cenvat credit on capital goods cannot be denied where the capital goods are used to manufacture dutiable as well as exempted goods as in the case of appellant.

He further submitted that the revenue has alleged that the appellant has not maintained separate record while manufacturing dutiable and exempted goods. It is his submission that in terms of Rule 6(2) of the Cenvat Credit Rules, 2004, the separate records are required to be maintained only with regard to inputs and input services for appropriate and proportionate availment of cenvat credit on inputs used in dutiable goods. Whereas, it is not the case with regard to capital goods, the credit on capital goods can only be denied under Rule 6(4) when the capital goods are used exclusively in manufacture of exempted goods. He further submits that there is no mention with regard to any detail of machinery/capital goods and used thereof.

He further submits that the Learned AR has also accepted that for the subsequent period, Cenvat Credit has been allowed to the appellant on capital goods. Therefore, the impugned order is to be set-aside.

On the other hand, the Learned AR submits that during the impugned period the appellant was availing exemption from whole of the duty of excise under Notification No. 30/2004-CE dated 09.07.2004. For the period up to 7.7.2009, even exemption Notification No. 29/2004-CE as amended by 58/2008-CE provided for full exemption. The appellant voluntarily reversed the cenvat credit without any protest which was confirmed and appropriated. The said notification was being availed for goods manufactured and cleared for exports as well as domestic sale. The said notification was amended by Notification No. 58/2008-CE dated 07.12.2008 granting full exemption to cotton yarn from payment of central excise duty till 06.07.2008. It is his submission that the admitted fact on record is that the appellant were availing simultaneous benefit of exemption Notification No. 29/2004-CE as well as Notification No. 30/2004-CE dated 09.07.2004, therefore, the issue for adjudication is admissibility of cenvat credit on capital goods during the period when the appellant manufactured and cleared goods under Notification No. 29/2004-CE dated 09.07.2004 on payment of concessional rate of duty under Notification No. 30/2004-CE dated 09.07.2004 at nil rate of duty and never maintained separate books of account for goods availing benefit of exemption under notification. The issue in hand is that in terms of Notification 30/2004-CE dated 09.07.2004, the exemption is whole of duty from the excisable goods, therefore the said notification clearly stipulate that the cenvat credit in respect of input and capital goods is not available. Therefore, the appellant is required to pay duty if they have taken cenvat credit on capital goods. It is his submission that the benefit of exemption Notification is required to fulfil and comply with the conditions specified in the notification as held by the Hon'ble Apex Court in the case of Commissioner of Customs (Import) Mumbai vs. Dilip Kumar & Company - 2018 (361) ELT 577 (S.C.). Although, there is no bar on simultaneous availment of Notification No. 29/2004-CE and 30/2004-CE being independent to each other, but the simultaneous availment of these two exemptions is subject to maintenance of separate books of accounts for goods availing benefit of Notification No. 29/2004-CE and 30/2004-CE. As the appellant was not maintaining separate books of account, therefore, they are not entitled for benefit of the notification. Accordingly, the appellant has availed inadmissible cenvat credit on capital goods during the material period when as they were manufacturing exempted goods. He further submits that although for the subsequent period, cenvat credit was allowed on capital goods but the decision will not help to the appellant as in terms of Notification No. 30/2004-CE dated 09.07.2004, the goods are exempted fully. As the appellant has failed to bring on record the documentary evidence to support their claim that they have paid the duty, therefore, the impugned order is to be upheld.

Heard the parties and considered the submissions.

On careful consideration of the submission made by both sides, the appellant is a manufacturer of cotton yarn and woven fabrics of cotton. It is also fact that the appellant is entitled for benefit of Notification No. 29/2004-CE dated 09.07.2004 for their clearances at concessional rate of duty and Notification No. 30/2004-CE dated 09.07.2004 without payment of duty if they do not avail cenvat credit on inputs. The Notification No. 29/2004-CE dated 09.07.2004 was amended by Notification No. 58/2008-CE dated 09.07.2008 wherein the goods were exempted from payment of duty.

We take a note of the fact that the Notification No. 59/2008-CE dated 07.12.2008 was also issued along with the Notification No. 58/2008-CE dated 07.12.2008 which prescribed concessional rate of duty at the rate of 4% for clearance of the goods manufactured by the appellant, therefore, it cannot be said that during the period 07.12.2008 till 07.07.2009, the goods manufactured by the appellant were totally exempt from payment of duty. The said notification was also not brought on record by the Learned AR. Therefore, the version of Learned AR is totally mis-conceived and not according to the facts on record.

We also take a note of the fact that it is a fact on record that during the impugned period, the appellant has cleared goods on payment of duty and to that effect invoices have been placed by the appellant on record. One of the such invoice is also extracted herein below for better appreciation of the facts:-

We further take a note of the fact that a similar issue has been dealt by this Tribunal in the case of M/s Winsome Yarns (supra)wherein this Tribunal observed as under:-

"6. There is no dispute that during period of dispute, the clearances for domestic consumption had been made by the appellant at nil rate of duty by availing the Notification No. 30/2004-C.E. and clearances for export had been made on payment of 4% duty under Notification No. 29/2004-C.E. There is also no dispute that during the period of dispute no input duty credit had been availed and only capital goods Cenvat credit had been availed in respect of which there is no prohibition in Notification No. 30/2004-C.E. Thus, the appellant even in respect of clearances made under Notification No. 29/2004-C.E. also, had not availed input duty credit, though in respect of these clearances, they could have availed the input duty Cenvat credit. The point of dispute is as to when the appellant has not availed input duty credit, whether they have option to avail the Notification No. 29/2004-C.E. where the rate of duty is 4%. The Department's contention is that once the appellant have not availed any input duty credit and they have become eligible for Notification No. 30/2004-C.E., they have no option but to avail of the exemption Notification 30/2004-C.E. only and they cannot opt from Notification No. 29/2004-C.E. and pay 4% the duty and in such a situation if any duty payment has been made, it would have to be treated as deposit and the clearances would have to be treated as clearances of fully exempted goods made under Notification No. 30/2004-C.E. and accordingly the appellant would not be eligible for capital goods Cenvat credit. This contention of the Department is totally incorrect, as Exemption Notification No. 29/2004-C.E. is an unconditional exemption which prescribes a rate of duty of 4% ad valorem. There is no condition in this notification that for availing of this exemption prescribing concessional rate of duty of 4% adv., input duty Cenvet credit must be availed. The condition of non-availment of input duty Cenvat credit is for nil duty under Notification No. 30/2004-C.E. But this does not mean that an assessee not availing input duty credit cannot avail the exemption under Notification No. 29/2004-C.E., as this is an unconditional Notification. When an assessee does not avail of input duty credit, he has option to pay 4% duty under Notification No. 29/2004-C.E. and also the option to clear his goods at nil rate of duty under Notification No. 30/2004-C.E. and when two exemption Notifications are available to an assessee, he can always opt for the Notification which is most beneficial for him and in this regard the Department cannot force the assessee to avail a particular exemption Notification. Looked at from this point of view, the Department's stand is incorrect.

6.1 Since during the period of dispute the appellant was clearing the goods by availing full duty exemption as well as on payment of duty, the capital goods cannot be treated as having been used exclusively in the manufacture of exempted goods and Cenvat credit in respect of the same cannot be denied.

In these circumstances, the impugned order deserves, no merits, hence the same are set aside. Consequently, the appeals are allowed."

Further, we take a note of the fact that on similar facts for the subsequent period, the cenvat credit on capital goods was allowed by the adjudicating authority to the appellant in their own case. Therefore, the revenue cannot take divergent view on the same issue which has already been settled by this Tribunal. As Rule 6 (4) of CCR, 2004 deals with the situation that if the capital goods have been used for manufacture of exclusively exempted goods, cenvat credit is not available. But, as per the facts of the case and arguments advanced by the Learned Counsel for the appellant, the appellant is manufacturing dutiable as well as exempted goods and clearing part of the goods on payment of duty, in those circumstances, the provision of Rule 6(4) of CCR, 2004 are not applicable to the facts of the case.

Further, it is not a case of the Revenue that the appellant is not entitled for the benefit of the Notification No. 29/2004-CE dated 09.07.2004, 30/2004-CE dated 09.07.2004, 59/2008-CE dated 07.12.2008 and Notification No. 58/2008-CE dated 07.12.2008.

In those circumstances, we hold that the cenvat credit on capital goods during the impugned period cannot be denied to the appellant. Further, even if it is agreed that notification no. 29/2004-CE read with Notification No. 58/2004-CE was considered which provided full, unconditional exemption notification up to 6.7.2009, capital goods credit would not have been available during that period. Once the duty became payable from 7.7.2009, the appellant was entitled to take credit on the capital goods used in the manufacture of the goods. No time limit has been prescribed for availing CENVAT credit on capital goods. As long as the capital goods in question were used in the manufacture of dutiable goods (post 7.7.2009), nothing stops the appellant from taking CENVAT credit even on the capital goods received earlier (up to 6.6.2009) but also used post 7.7.2009.

In these terms, we do not find any merit in the impugned order, the same is set-aside.

In result, the appeal is allowed with consequential relief, if any.

(Pronounced on 10.08.2021)