Buyer cannot be Denied CENVAT Credit if Supplier does not Avail Advance Authorisation Duty Exemption: CESTAT in Galaxy Surfactants’ Case [Read Order]

The Mumbai Bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) recently held that a buyer cannot be denied Central Value Added Tax (CENVAT) credit in a situation where the supplier, though eligible for duty-free clearance under the Advance Authorisation or Advance Licence scheme chooses to clear goods on payment of duty.

The matter surrounds Galaxy Surfactants Ltd., a prominent manufacturer of OSAA-Sodium Lauryl Sulphate (SLS) and Sodium Lauryl Ether Sulphate (SLES) etc., that are covered under Chapter Heading No. 3402 of the First Schedule to the Central Excise Tariff Act, 1985.

The SLS and SLES are exported under export obligation; parallelly, Galaxy Surfactants procures Ethylene Oxide from Reliance Industries Ltd. (Reliance), availing the facility of an Invalidation Letter issued by the Joint Director General of Foreign Trade (JDGFT).

The JDGFT letter ensures that the supplier is eligible to clear the goods without payment of duty under the Advance Authorisation scheme; however, here, the supplier paid duty and Galaxy Surfactants availed CENVAT credit on the duty paid.

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Consequently, the department issued a show-cause notice (SCN) alleging collusion between Galaxy and Reliance to avail undue CENVAT benefit, and sought recovery of CENVAT credit with interest and penalties. However, the adjudicating authority dropped the allegations, leading to the present appeal instituted by the Revenue challenging the order of the adjudicating authority.

The Revenue, represented by Xavier P.M. Mascarenhas assailed the impugned order inter alia, on the ground that the supplier of raw material i.e., Reliance was not required to pay any duty in terms of the Notification No.44/2001-C.E. (N.T.) dated 26.06.2001 and the duty so paid cannot be taken as CENVAT credit by Galaxy, which would contravene the provisions of Advance License scheme.

It was further averred that the Tribunal order in M/s Oleofine Organics (India) Pvt. Limited Vs. CCE, Thane (2013) on identical facts cannot be considered, as the same has been appealed before the Bombay High Court.

Arjun Raghavendra appeared for Galaxy Surfactants.

The Bench of S.K. Mohanty, Member (Judicial) and M.M. Parthiban, Member (Technical) examined the statutory scheme under the CENVAT Credit Rules, 2004, particularly Rule 3 which entitles a manufacturer to take credit of central excise duty paid on inputs. The Tribunal observed that there is no provision in the Central Excise or CENVAT legislation that requires the supplier to avail the exemption via Advance Authorisation scheme for the buyer to claim credit.

CESTAT noted that what matters is that the recipient received duty-paid goods under proper duty-paying documents and used them in manufacture. The Bench further noted that any proceedings, if necessary, lay against the supplier and penal consequences could not be shifted to the recipient manufacturer.

Regarding the case of M/s Oleofine Organics (supra), CESTAT noted that the case had been dismissed by the Bombay High Court, thus rendering finality to the matter

Accordingly, CESTAT found no infirmity in the adjudicating authority’s decision to drop the proposals in the SCN and dismissed the Revenue’s appeal, upholding Galaxy’s entitlement to CENVAT credit.

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