Tax Reversal of Credit Amounts to Non-Taking of Credit on Inputs, Benefit to Be Given of Notification Granting Exception: CESTAT [Read Order]

The Customs, Excise & Service Tax Appellate Tribunal (CESTAT), Ahmedabad Bench, has recently while considering two appeals filed before it, held that reversal of credit amounts to non-taking of credit, and hence that the benefit of the notification granting exemption has to be given.

The aforesaid observation was made by the Tribunal when two appeals filed before it was taken together for decision, both arising out of the same impugned Order-in-Original No. SUREXCUS-000-COM-01-19-20 dated 28.05.2019.

The brief facts of the case  was that M/s. Marudhar Spinning Mills Pvt. Ltd. (M/s MSMPL) Surat, engaged in the manufacture of excisable goods polyester yarn falling under heading No. 55.09 of the First Schedule to the Central Excise Tariff Act, 1985, during the relevant period, was, in the course of scrutiny of its records, observed by the department to have made domestic clearances of finished goods without payment of Central Excise Duty in terms of Notification No. 30/2004- CE dated 09.07.2004 during the period April 2004 to March 2007.

M/s MSMPL, having simultaneously cleared identical goods on the payment of applicable Central Excise Duty for Exports, it was maintaining separate records for the two categories of goods i.e., exempted & duty paid as mandated in Rule 6 of Cenvat Credit Rules 2004.

On scrutiny of ER-1 returns for the Month of March 2017, it appeared that they had availed consolidated cenvat credit by a singly entry of all the inputs used in the manufacture of Finished goods, cleared without payment of duty under the Notification No. 30/2004-CE dated 09.07.2004 during the period April 2016 to March 2017, and further that in respect of these goods they had availed the consolidated Cenvat Credit by single entry for the aforesaid period and reversed an amount equal to 6% of the Value of such exempted goods as per the provisions of Rule 6(3) of the Cenvat Credit Rules too.

It also appeared to the department that they had availed cenvat credit on exempted goods on monthly basis and reversed an amount equal to 6% of the value of the exempted finished goods also on monthly basis, for the period April 2017 to June 2017, based on which a show cause notice was served on M/s MSMPL for the denial of benefit of Notification No. 30/2004-CE dated 09.07.2004, for the demand of central excise duty of Rs. 6,96,22,836/- on value of goods cleared during the period April 2016 to June 2017, along with interest and penalty, the amount of Rs. 3,34,18,901/- @ 6% already reversed under Rule 6(3), being declared invalid.

In the adjudication process, the adjudicating authority vide its impugned order dated 30-8-2006, by denying the benefit of Notification No. 30/2004-CE dated 09.07.2004, confirmed the demand of Central Excise Duty amounting to Rs. 6,96,22,836/- along with interest and penalty, and ordered for the appropriation of cenvat credit of Rs. 3,52,83,382/- against the determined duty liability which was reversed by the appellant. And it is by being aggrieved by the afore mentioned impugned order that both the department as well as M/s MSMPL, has now filed the present appeals before Tribunal.

The submission of the appellant being that as it has already reversed the excess CENVAT credit balance arising due to the Cenvat Credit taken in relation to exempted goods, the demand of duty confirmed ought to be set aside , and further that the denial of the benefit of Notification No. 30/2004-CE dated 09.07.2004 ,availed by the appellant is unwarranted and  inconsistent with Rule 6 of Cenvat Credit Rules, 2004, for the reason that the appellant has correctly reversed the credit by paying an amount of 6% of the exempted goods in view of Rule 6 of the Cenvat Credit Rules, 2004, the Tribunal observed as follows :

“We find that the original authority has gravely erred in not considering the said sub-rule (3D) and in relying on explanation of Rule 3 of Cenvat Credit Rules, 2004. We further find that the said explanation has no relevance to the facts of the present case in view of the specific provision of sub-rule (3D) of Rule 6.”

“As regards the revenue’s appeal for enhancing the penalty imposed under section 11AC, we find that since the demand itself is not sustainable as per our above observation, the penalty being consequential would also not sustain.”, it added.

Thus, allowing the assessee’s appeal while dismissing the Revenue’s, it concluded:

“In view of above analysis and findings, we are of the considered view that the impugned order is unsustainable, and accordingly, we set aside the same.”

To Read the full text of the Order CLICK HERE

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