Rebate Claim: Madras HC Rules Cenvat Credit Not Liable to Lapse Under Rule 11(3)(i) of CCR [Read Order]

The High Court of Madras, dismissed writ appeals filed by the department in a rebate claim dispute, holding that Cenvat credit was not liable to lapse under Rule 11(3)(i) of the Cenvat Credit Rules, 2004.

The Revenue-appellant,  filed these writ appeals, challenging the orders passed by the lower authorities.In this case, Valli Textile Mills,petitioner-assessee,manufactured cotton and blended fabrics for domestic sale and export. It filed two rebate claims for duty paid on exported goods, one was approved, and the other was rejected.

The department later issued show cause notices in 2008, stating that the Cenvat credit had lapsed under Rule 11(3)(i) of the Cenvat Credit Rules, 2004. The petitioner gave its explanation, but the claims were rejected by the Assistant Commissioner in 2009.

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The petitioner filed appeals, which were allowed by the Commissioner (Appeals). The Revenue then filed revisions before the Central Government, which were allowed in 2013, restoring the original rejection.

The petitioner challenged this in writ petitions. In 2018, the Single Judge allowed the petitions and set aside the Central Government’s orders. The Revenue filed these intra-court appeals against that decision.

The division bench of Justice G.R. Swaminathan and  Justice M.Jothiraman heard arguments from both sides. The standing counsel for the appellants relied on the orders passed by the original authority and the Central Government, while the petitioner’s counsel supported the Single Judge’s decision. Written submissions were also filed.

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The case involved exemption notifications issued under Section 5A of the Central Excise Act. Notification No. 29/2004 provided partial exemption, while Notification No. 30/2004 gave full exemption but only if no credit on inputs was availed. The petitioner had claimed benefits under both notifications and had a Cenvat credit balance of ₹92,17,111 as on 28.02.2007.

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The issue was whether this credit lapsed due to Rule 11(3) of the Cenvat Credit Rules, 2004, which came into effect from 01.03.2007. The court noted that subrule (3) had two parts (i) and (ii), separated by a semicolon and “or,” indicating they were distinct provisions. While subclause (ii) expressly mentioned lapse of credit, subclause (i) did not.

Since the Revenue admitted that the petitioner’s case fell under subclause (i), the court held that the credit could not be treated as lapsed. It rejected the argument that both subclauses should be read together and followed the approach taken in similar Customs,Excise and Service Tax Appellate Tribunal(CESTAT) decisions. Therefore, the court upheld the Single Judge’s order granting relief to the petitioner.

The court also addressed the preliminary objection regarding the maintainability of the writ appeals based on monetary limits set in the Central Board of Indirect Taxes and Customs(CBIC) Instruction dated 06.08.2024. It held that once the appeal was filed, the court had to decide the matter on merits and could not dismiss it solely on the basis of those instructions.

However, the court clarified that granting relief did not imply endorsement of the appellate authority’s reasoning, nor did it examine the issue of retrospective application of Rule 11(3).

In short,the writ appeal were dismissed.

To Read the full text of the Order CLICK HERE

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