The Tripura High Court allowed the benefit of exemption notification as basic duty of excise was exempt on the final product but other duties such as National Calamity Contingent duty and Education Cess were applicable.
The assessee, M/S Dharampal Satyapal Ltd. claimed CENVAT credit on the inputs utilized for manufacture of the final product. The adjudicating authority, however, was of the opinion that since the final product was exempt from payment of due date, the assessee could not have availed a CENVAT credit paid on the inputs utilized in such final product.
The adjudicating authority issued a show cause notice on the premise that the assessee’s unit was exempt from payment of the duties of excise and other duties and on the basic principle of claiming CENVAT credit since the final product was not dutiable, CENVAT credit would not be available on the raw material and inputs utilized for manufacture of this final product.
The assessee was called upon to answer why the CENVAT credit to the tune of Rs.3.48 Crores availed by the assessee on inputs and capital goods for the period should not be reversed or recovered.
He also raised demands for recoveries of additional duty of excise and other duties on the CENVAT credit availed by the assessee. He also proposed to impose a penalty. Further notice was issued for recovery/reversal of CENVAT credit to the tune of Rs.4.25 Crores with penalty for the period.
The Commissioner of the Central Excise, Shillong passed an order on 28.09.2007 and confirmed the demands as per the show cause notices and imposed a matching penalty of Rs.7.80 Crores.
He referred to the definition of term “exempted goods” contained in Rule 2(e) of the CENVAT Credit Rules and came to the conclusion that the product of the assessee would fall within the said definition. He thereupon proceeded to apply Rule 6(1) of the said Rules in order to come to the conclusion that the assessee had wrongly availed the CENVAT credit which must be reversed or recovered with penalty.
The assessee carried the matter in Appeal filing separate Appeals for different assessment periods. These Appeals were consolidated and allowed by the Tribunal by the common impugned judgment.
The department has raised the issue Whether the Customs, Excise and Service Tax Appellate Tribunal was right in law in interpreting provisions of Rule 6(1) and 6(4) of the Cenvat Credit Rules, 2004 and thereby giving benefit of exemption notifications in favour of the respondent-assessee, ignoring the contention of the appellants that the final product being exempt from payment of basic duties, the assessee was not entitled to claim the benefit of the notification dated July 9, 2004 as amended from time to time.
The coram of Justices S.G. Chattopadhyay and Akil Kureshi clarified that the Notification appears to have a dual purpose in the mind of the authority.
Firstly, to encourage investment in manufacturing units of specified products in the North-Eastern States.
Secondly, the element of duty waived by the Government of India is also ploughed back into the region by augmenting the manufacturing capability of a unit in the said region or for other purposes such as development of infrastructure or civil works or social projects in the region.
The amount of duties saved by the manufacturer thus under this Notification, was to be utilized in a specified manner.
The additional condition was that any such investment so made as required under the Notification, would not be withdrawn before completion of a period of 10 years and the breach of the condition would result into the recovery of duties forgone, the court added.
Therefore, the court held that such exemption, thus, did not directly increase the profitability of the product since the assessee could not retain the sum equivalent to the duty payable and utilized it at will.
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