Orient Syntex vs Commissioner, Central Excise And GST Alwar

The appellant herein are engaged in manufacture of ‘Polyester Viscose Yarn’ and have installed capital goods in their factory during the

financial year 2016-17; in the same year the appellants have partly cleared final products availing exemption notification no. 30/2004-CE dated July 9,

2004 and exported some goods under bond under Rule 19 of the Central Excise Rules 2002. Some part of the goods were however cleared on

payment of duty during the year 2017-18 but pursuant to an audit conducted the Department opined that the credit availed by the appellant was not

available to them as they have cleared the goods without payment of duty availing exemption under notification 30/2004. A show cause notice dated

April 11, 2018 was issued dissolving credit of Rs.1,40,72,105/-. The show cause notice has been dropped by the original authority vide order dated

October 4, 2019. On appeal filed by the Department Commissioner (Appeals) has passed the impugned order dated July 27, 2018 setting aside the

order of the original authority and confirming the duty as demanded in the show cause notice, hence this appeal.

Learned counsel for the appellant submits that with effect from April 1, 2016, Rule 6(4) of the CENVAT Credit rules read as under:

“No CENVAT credit shall be allowed on capital goods used exclusively in the manufacture of exempted goods or in providing exempted

services for a period of two years from the date of commencement of the commercial production or provision of services, as the case may

be, other than the final products or output services which are exempt from the whole of the duty of excise leviable thereon under under any

notification where exemption is granted based upon the value or quantity of clearances made in a financial year.

Provided that where capital goods are received after the date of commencement of commercial production or provisions of services, as the

case may be, the period of two years shall be computed from the date of installation of such capital goods.â€​

He submits that a perusal of Rule 6(4) indicates that CENVAT credit is not allowed if the capital goods are used exclusively in the manufacture of

exempted goods for a period of two years from the date of commencement of commercial production or installation of the capital goods; in the instant

case he submits that the capital goods were received during 2016-17 which is after the commencement of commercial production; therefore, in terms

of the proviso the relevant period is to be reckoned from the date of installation of capital goods. It is evident from the records that the appellant has

utilized the capital goods for manufacture of final products cleared on payment of duty in 2017-18. He submits that this is evident from the ER-1 filed

for the month of June 2017. Further, he submits that in view of the amendment credit of capital goods is allowable. He places reliance on the following

cases:

i) Welspun India Limited vs Commissioner, CE & ST, Surat, 2019 (9) TMI 88-CESTAT Ahmedabad

ii) Sutlej Textiles & Industries Limited vs. Commissioner, CE & ST, Surat, 2020 (5) TMI 95- CESTAT Ahmedabad.

iii) Mohit Industries Limited vs. CCE & ST, SuratI, 2019 (11) TMI 292-CESTAT Ahmedabad.

Learned counsel submits that Commissioner (Appeals) in the impugned order contended that payment of duty in 2017-18 is not relevant as the

period in dispute was 2016-17. This finding by the learned Commissioner is against a plain understanding of the amended rule 6. He further submits

that learned Commissioner relied upon Spenta International Ltd. vs. CCE Thane, 2007 (216) ELT (Tri-LB) which was followed in ABC Engineering

Works vs. CCE Guntur 2010 (20) STR 145 (Tri-BLR). He submits that however, the above case law is for the period prior to April 1, 2016 and as

such cannot be made applicable to a period after the amendment i.e. after April 1, 2016. In the following cases it was held that credit cannot be denied

when such manufacture of dutiable goods started subsequently:

i) Kaleesuwari Refinery Pvt. Ltd. vs. CESTAT, Chennai, 2016 (340) ELT 632 (Mad.)

ii) CCE, Bangalore vs. Kailash Auto Builders Ltd. 2012 (80) ELT 49 (Kar.)

iii) CCE & C, Vadodara-II vs. Gujarat Propack, 2009 (234) ELT 409 (Guj.)

iv) Brindawan Beverages Pvt. Ltd. vs. Commissioner, CE, Meerut, 2014 (301) ELT 443 (All.) upon remand in Brindavan Beverages Pvt. Ltd. vs.

Commissioner, CE, Meerut, 2014 (310) ELT 398 (Tri Del.) 5. Learned counsel further submits that without prejudice to the above contention, as the

goods were exported during 2016- 19 under bond, it cannot be held that they are exempted goods. He places reliance on Repro India Ltd. vs. UOI

2009 (235) ELT 614 (Bom). He further submits that Rule 6(4) has no application when final products are exported under bond in terms of Rule 6(6)

(v) of CENVAT credit rules. He also relies upon the following case laws:

i) CCE vs. Drish Shoes Ltd. 2010 (254) ELT 417 (HP)

ii) Sangam India Ltd. & Ors. vs. CC & ST, Udaipur, 2018 (1) TMI 1012-CESTAT New Delhi

iii) Kanchan India Ltd. & Ors. vs. Commissioner, CGST & CE, Udaipur, 2020 (1) TMI 278-CESTAT New Delhi

Learned authorised representative for the Department reiterates the findings of the impugned order and submits that the goods manufactured by the

appellant cleared for home consumption as well as for export remained fully exempted in terms of notification no. 30/2004-C dated July 9, 2004,

hence, the CENVAT credit of capital goods used for the manufacture of such goods cannot be allowed since these are being used exclusively in the

manufacture of the exempted goods.

Heard both the sides and perused the records of the case. The brief issues that require consideration by this Bench in the instant case are as to:

i) Whether in terms of amended rule 6(4) credit of capital goods is admissible if the production and clearance of dutiable goods takes place within two

years from the date of commencement of production / installation of capital goods.

ii) Whether goods exported under bond can be held to be exempted goods.

On perusal of the amended rule 6(4) extracted supra, it is clear that no credit shall be allowed on capital goods used exclusively in the manufacture

of the exempted goods or in providing exempted services for a period of two years from the date of commencement of the commercial production or

from the date of installation of capital goods. In the instant case the fact that the capital goods are installed during 2016-17 is not disputed. The only

dispute that is raised by the Revenue is that during 2016-17 the appellant has either cleared the goods availing the exemption under notification 30/2004

or exported the goods under bond under rule 19. It appears that the impugned order fails to take into consideration the amended rule which is very

clear that credit is not admissible if the said capital goods are utilized exclusively in the manufacture of exempted goods for a period of two years from

the date of commencement of commercial production or from the date of installation of capital goods. In the instant case, the capital goods are

installed after commencement of production in the year 2016-17. The credit would have been inadmissible to the appellant if they have continued to

clear exempted goods till 2018-19. However, records of the case indicate that the appellant has cleared goods on payment of duty during 2017-18 as

evidenced by the ER-1 filed for the month of June 2017. Therefore, in view of the amended provisions the credit is admissible to the appellant. We

find that the provisions of the amended rule 6(4) have been brought out by the Tribunal in the case of Welspun India Limited (Supra) wherein it was

held that:

“4……… As per the above substituted Rule, it is clear that the bar on availing the credit in respect of capital goods used in

manufacture of exempted goods shall apply only if the capital goods are used for two years from the date of installation / commencement of

production. As per the facts of the present case, though the appellant received and installed the capital goods in their running unit in

August, 2015 but before completion of two years, in August 2017 the capital good was used for manufacture of goods which were cleared

on payment of duty, availing the exemption notification 29/2004-CE. Therefore, the capital goods were not used continuously for two years

for manufacture of exclusively exempted goods. Since the amendment is by way of substitution, it will be applicable from the retrospective

effect.â€​

In view of the above we find that the issue is no longer res integra. We find that the original authority has correctly appreciated the provisions of

Rule 6(4) and has allowed the credit whereas the learned Commissioner (A) has erred in following the ratio of the larger Bench in Spenta

International Ltd. (supra) which was followed in ABC Engineering works (Supra). Therefore, we have no hesitation in holding that the impugned

order is not sustainable and the credit is admissible to the appellant. We find that the appellant have also taken an alternative plea that goods exported

under bond cannot be treated as exempted goods and therefore inspite of the fact that they have cleared only exempted goods during 2016-17 are

cleared goods for export under Rule 19, credit is admissible.

We find that they have relied upon the ratio of decision in the case of Repro India Ltd. (Supra). We find that the provisions of amended rule being

clear and the conditions thereupon have been fulfilled by the appellant and hence credit is admissible. We find that the alternative plea would be of no

further help and thus, does not require consideration.

In view of the above, the impugned order dated July 27, 2018 is set aside and the appeal is allowed with consequential relief, if any, as per law.