Cenvat Credit Extends Period Prior to Excise Registration: CESTAT allows Credit to Baking Soda Manufacturer [Read Order]

In a recent ruling, the Chennai bench of Customs, Excise and Service Tax Appellate Tribunal ( CESTAT ) has allowed CENVAT credit to baking soda manufacturers observing that the credit extends to the period prior to excise registration. It stated that it is a settled principle in law that the benefit of credit cannot be denied to a manufacturer for the period prior to Registration.

The fact is that an excise appeal was filed by M/s. Bakers Product (India) challenging the order of the Commissioner of Customs, Central Excise and Service Tax. The order had confirmed excise duty demands on clearances under Section 11A(4) of the Central Excise Act, 1944, along with interest and penalties under Section 11AC of the Act and Rule 26 of the Central Excise Rules, 2002, while also appropriating the amounts already paid towards duty.

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The Appellant, engaged in manufacturing products like baking powder, custard powder, maize starch, and cocoa-based items under various brand names including ‘Bakers’, ‘Mickeys’, ‘Bapco’, and ‘NK’, was alleged to have used third-party brand names, making them liable to pay excise duty. SSI exemption was allowed only for clearances under their own brand ‘NK’ and unbranded goods.

A Show Cause Notice dated 07.05.2014 was issued invoking the extended period, proposing duty demand with interest, fines under Section 34, and penalties under Section 11AC and Rules 25 and 26 of the Central Excise Rules, 2002. Further Statements of Demand dated 04.09.2014 and 26.11.2014 were also issued. The adjudicating authority confirmed the demands and imposed penalties. Aggrieved, the Appellants have filed appeals before the Tribunal.

A major point of contention raised by the appellant in the appeal was the denial of Cenvat credit by the adjudicating authority. The appellant had accepted the duty liability on baking powder but sought the benefit of Cenvat credit for duty paid on raw materials, particularly maize starch.

The adjudicating authority denied the credit on the grounds that the appellant had failed to comply with procedural requirements under Rules 9(5), 9(6), and 9(7) of the CENVAT Credit Rules, 2004, and that the appellant was unregistered under the Central Excise Act for part of the relevant period.

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In support of their claim, the appellant's counsel cited various judicial precedents, including Well Known Polyesters Ltd., Icon Industries, and Embassy Property Development, which held that credit on duty-paid inputs could not be denied solely on the ground of absence of registration, provided that manufacturing activity and documentation were in order.

The  tribunal observed that the​​ the appellant has admitted the duty liability on Baking powder, Custard powder and Icing sugar and their claim is limited to entitlement of cenvat credit for Baking powder and eligibility of concessional rate of duty of 1% or 2% as the case may be for Custard powder and Icing sugar.

In addition, it noted that the Adjudicating Authority denied Cenvat Credit on the grounds that the appellant sought undue benefits even for periods without Excise registration and the eligibility of Cenvat Credit can only be adjudicated post-availment, and there is no legal provision allowing retrospective credit claims or credit for periods during which the assessee was unregistered.

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The bench observed that the appellants did not obtain Central Excise registration under a bona fide belief that their products were exempt from excise duty. It noted that “They had not taken out Central Excise Registration on a bonafide belief that their products do not attract excise duty. It is seen that the main demand pertains to Corn Flour clearances which are not dutiable as held above. In respect of Baking Powder after allowing the Cenvat credit, the duty demanded of Rs.18,66,889/- will be drastically reduced. Further, after according the concessional rate of duty on Custard Powder and Icing Sugars also, the duty demand would not be significant. Their view that they are not required to take Central Excise Registration under a genuine plea that their products do not attract excise duty as they are related to agriculture and food products appears to be acceptable.”

The two member bench of Ajayan TV and Vasa Seshagiri Rao concurred with the decision in the Well Known Polyesters Ltd case, where it is well-established that “in respect of the goods manufactured during the period when the appellant was not registered, credit can be taken subsequently also.”

In the Well Known Polyesters Ltd case, the tribunal observed that “... in the case of J.R. Herbal Care India Limited v. CCE, Noida 2010(253) E.L.T.321 (Tri-Del). In this case the appellant had received the capital goods while availing SSI exemption without taking registration. Cenvat credit was taken on the capital goods for the years 2003-04 and 2004-05 but taken in the year 2005-06. This was allowed by the Tribunal. The Tribunal took a view that there is no provision in the rules that credit was not available to unregistered manufacturers. Manufacturers exempted from the registration do not cease to be a manufacturer of excisable goods.”

Accordingly, the tribunal has no hesitation in holding that the denial of cenvat credit is not tenable and hold that the appellant is entitled for Cenvat credit as claimed by them on the raw materials used in the manufacture of Baking Powder.

To Read the full text of the Order CLICK HERE

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