The Chennai bench of the Customs Excise and Service Tax Appellate Tribunal ( CESTAT ) observed that the Cenvat Credit Availed on Excise Duty Paid on Inputs and Capital Goods Eligible for Exemption of Central Excise Act ( CEA ).
Brief facts are that the appellant, M/s.E-mox Device Company was registered with the department for the manufacture of Electrical Mosquito Repellent Device ( EMD ), falling under Chapter sub-heading No.85167920 of the First Schedule to the Central Excise Tariff Act, 1985. The appellant was availing Cenvat Credit facility under Cenvat Credit Rules, 2004.
Ms. Manasa Srinivasan representing for the appellant argued that Impugned Order seeks to recover Cenvat credit validly availed by the appellant alleging that excess credit has been passed on to the appellant by Godrej Consumer Products Limited, Kalapahar, Guwahati ( GCPL, Kalapahar ) and Godrej Consumer Products Limited, Lokhra, Guwahati ( GCPL, Lokhra ) due to alleged overvaluation done by them in order to avail excess refund in terms of Area-based exemption under Notification No.20/2007- C.E. dated 25.04.2007
Mr. N.Satyanarayanan argued for the respondent it was submitted that the two units of M/s.GCPL at Guwahati have availed area based exemption under Notification No.20/2007- C.E. dated 25.04.2007, which was granted in the form of refund of duty after payment on value addition and the duty on value addition has been fixed as 34% of total duty payable. In order to avail more refund, M/s.GCPL has resorted to overvaluation of their goods i.e., Mosquito Repellent Refills, and paid excise duty. The SCN issued to these units have been adjudicated and the demands have been confirmed by ordering recovery of the excess refund granted to these units with consequential penalty and interest
The issue to be decided was whether the credit of duty paid on Mosquito Repellent Refills procured from GCPL, Guwahati are legal and proper. At the outset, it is to be stated that the appellant has received the inputs and used them in the manufacture of the final product namely, combi pack of Mosquito Repellent Refill Device. It is also not disputed that the appellant paid duty on the inputs procured by them and used in the manufacture of the final product.
The coram of Vasa Seshagiri Rao ( Technical member ) and Sulekha Beevi. C.S ( Judicial member ) observed that the credit on inputs and capital goods shall be admissible, as if no portion of the duty paid on such inputs or capital goods was exempted under the said notification. The rule carves out a special provision wherein, by Area based exemption notification, even if the duty paid by manufacturer was refunded, the Cenvat credit availed of duty paid on inputs and capital goods would be eligible. The bench observed that the appellant has rightly availed the Cenvat credit of the duty collected from them by the manufacturer who has availed area based exemption notification.
The High Court of Madras, in the case of Commissioner of Central Excise, Chennai – 2005 (1) ,High Court of Judicature at Madras, had occasion to analyse a similar situation wherein, the supplier of goods was unaware of an exemption notification and paid the duty on the final product which was passed on to the assessee. The department was of the view that as the supplier was eligible for exemption, the assessee was not eligible for credit. The High Court of Madras held that if the duty has been paid on the inputs, Cenvat credit cannot be denied
In the case of Balakrishna Industries Ltd. v. Commissioner of Central Excise., Jaipur-I – 2014 the issue under consideration was whether the goods supplied to the appellant without availing the benefit of Notification No.44/2001-CE (NT)/ 26.06.2001 and consequent credit passed on to assessee was eligible or not. The Tribunal followed the decision in the case of Commissioner of Central Excise v. MDS Switchgear Ltd. (S.C.) to hold that credit was eligible.
CESTAT concluded that the denial of credit was not justified. In the result, the Impugned Order was set aside. The appeal was allowed.
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