2011 (1) TMI 664 - AT - Central Excise

Refund - Notification No. 30/04-C.E. dated 9-7-2004 - Rule 5 of Cenvat Credit Rules 2004 - whether the appellant was eligible for the cenvat credit when they have not taken registration and the cenvat credit taken by them for the period 1-11-2008 to October 2009 can be allowed - Cenvat credit was taken on the capital goods for the years 2003-04 and 2004-05 but taken in the year 2005-06 - in the case of clandestine removals even if the duty is paid subsequently cenvat credit on inputs used will be available to the assessee/manufacturer subject to the conditions that proper documents showing the payment of duty are available - in this case also the action of the appellants in taking credit on 9-10-2009 has to be upheld Since the appellant is availing full exemption and not even registered and the exempted goods were not exported under bond refund has been denied - In fact it is the appellants who have suffered the loss because of the delay in obtaining registration and not exporting the goods under bond even though appellant had taken a decision to avail cenvat credit and indicated the same at the time of removal. It is strange to note that Central Excise Officers have certified the availment of cenvat credit even though the appellant was not registered and they had not made any verification whatsoever with regard to availment of cenvat credit - Appeal is allowed

The core legal questions considered in this judgment are:

1. Whether a manufacturer who has not obtained Central Excise registration at the time of manufacture and clearance of goods is eligible to take Cenvat credit subsequently for inputs used in the manufacture of exported goods.

2. Whether refund of Cenvat credit under Rule 5 of the Cenvat Credit Rules, 2004 is permissible when the goods exported are exempted from duty and are not exported under bond or Letter of Undertaking (LUT).

3. Whether procedural non-compliance, such as failure to obtain Central Excise registration before manufacture or failure to export goods under bond, disentitles the manufacturer from claiming Cenvat credit or refund thereof.

4. The scope and applicability of transitional provisions under Rule 3(2) of the Cenvat Credit Rules, 2004, in relation to credit on inputs used in manufacture prior to registration.

Issue-wise Detailed Analysis:

Issue 1: Eligibility for Cenvat Credit Without Prior Central Excise Registration

Legal Framework and Precedents: Rule 3 of the Cenvat Credit Rules, 2004 governs the eligibility of manufacturers to avail Cenvat credit on inputs. The appellant relied on a Tribunal decision where credit was allowed retrospectively despite absence of registration at the time of receipt of capital goods, holding that manufacturers exempted from registration do not cease to be manufacturers for credit purposes. This was supported by judicial pronouncements permitting credit even in cases of clandestine removals where duty is paid subsequently, provided proper documentation exists.

Court's Interpretation and Reasoning: The Court noted that the appellant commenced manufacture and cleared goods without registration but later obtained registration and claimed credit retrospectively. The Tribunal held that there is no provision in the rules prohibiting credit to unregistered manufacturers and that the appellant, being a manufacturer, is entitled to credit. The principle that manufacturers exempted from registration remain manufacturers for credit purposes was applied.

Key Evidence and Findings: The appellant had availed exemption under Notification No. 30/04 and cleared goods without payment of duty, but later obtained registration and claimed credit on inputs used during the unregistered period.

Application of Law to Facts: The Tribunal applied the precedent and legal provisions to hold that the appellant's retrospective claim of credit is permissible as the manufacturer status is not negated by lack of prior registration.

Treatment of Competing Arguments: The department argued that credit is not available without registration, but the Tribunal rejected this, relying on precedents and the principle that registration is procedural and does not affect substantive eligibility.

Conclusion: The appellant was eligible to take Cenvat credit on inputs used during the unregistered period upon obtaining registration subsequently.

Issue 2: Refund of Cenvat Credit on Export of Exempted Goods Without Bond or LUT

Legal Framework and Precedents: Rule 5 of the Cenvat Credit Rules, 2004 permits refund of credit on inputs used in manufacture of exported goods. The department contended refund is only permissible if goods are exported under bond or LUT. However, the Tribunal referred to High Court decisions which held that refund of input credit is admissible even when exempted goods are exported without execution of bond or LUT. Cases cited include decisions by the Himachal Pradesh and Bombay High Courts, which rejected the requirement of bond for refund eligibility.

Court's Interpretation and Reasoning: The Tribunal held that the procedural requirement of bond or LUT is not a condition precedent for refund of credit on exempted goods exported. The Tribunal emphasized that denial of refund on this ground was unsustainable.

Key Evidence and Findings: The appellant exported Texturised Polyester Filament Yarn under exemption notification without bond or LUT but with Central Excise seal and proper documentation.

Application of Law to Facts: The Tribunal applied the judicial precedents to conclude that the appellant's refund claim cannot be denied solely due to absence of bond or LUT.

Treatment of Competing Arguments: The department's reliance on bond requirement was rejected in light of authoritative judicial decisions.

Conclusion: Refund of Cenvat credit on exempted goods exported without bond or LUT is permissible.

Issue 3: Effect of Procedural Lapses on Eligibility for Credit and Refund

Legal Framework and Precedents: The Tribunal referred to decisions such as Salzer Controls Limited and Termax Pvt. Limited, which established that procedural violations, including failure to execute bond or obtain registration timely, should not disentitle a manufacturer from legitimate credit/refund claims if the intended use of inputs is established.

Court's Interpretation and Reasoning: The Tribunal observed that the appellant's failure to obtain registration before manufacture and failure to export under bond were procedural lapses. However, since the appellant had exported the goods, maintained proper documents, and the Central Excise officers had certified availment of credit, these lapses did not justify denial of refund.

Key Evidence and Findings: Examination reports confirmed export under Central Excise seal and availment of credit; no dispute on use of inputs for exported goods.

Application of Law to Facts: The Tribunal applied the principle that procedural non-compliance should not defeat substantive rights and benefits, especially when no mala fide or misuse is shown.

Treatment of Competing Arguments: The department's argument that non-registration and absence of bond should bar credit/refund was rejected as overly technical and inconsistent with judicial precedents.

Conclusion: Procedural lapses did not disentitle the appellant from claiming credit or refund.

Issue 4: Applicability of Transitional Provisions Under Rule 3(2) of Cenvat Credit Rules

Legal Framework and Precedents: Rule 3(2) provides for transitional credit on inputs and inputs contained in final products in stock as on the date of registration. The department argued that the appellant was eligible only for transitional credit from the date of registration.

Court's Interpretation and Reasoning: The Tribunal distinguished the present case from the transitional credit scenario, holding that since the appellant was a manufacturer and subsequently obtained registration, credit on inputs used prior to registration is allowable and not restricted to transitional credit provisions alone.

Key Evidence and Findings: The appellant claimed credit on inputs used in manufacture during the unregistered period and not merely on stock as on date of registration.

Application of Law to Facts: The Tribunal applied the principle that manufacturer status and entitlement to credit is not confined by the transitional credit rule when registration is obtained subsequently.

Treatment of Competing Arguments: The department's strict interpretation of Rule 3(2) was rejected in favor of a broader view of credit entitlement.

Conclusion: The appellant was entitled to credit on inputs used prior to registration and not limited to transitional credit on stock.

Significant Holdings:

"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."

"Refund of input credit is admissible when exempted goods are exported without execution of bond."

"Benefit of exemption or concession should not be denied whenever intended use of material is established by other evidences and just because of procedural violation, that by itself will not disentitle them from taking the benefit."

"Procedural requirements should not come in the way of legitimate claim for refund."

"The appellant's failure to obtain registration before manufacture and failure to export under bond were procedural lapses, but since the appellant had exported the goods and maintained proper documents, these lapses did not justify denial of refund."

The Tribunal set aside the impugned order rejecting the refund claim and remanded the matter to the original adjudicating authority for verification of documentary evidence regarding availability of Cenvat credit, determination of eligible quantum of credit, and proof of export.

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