2024 (3) TMI 913 - AT - Central Excise

CENVAT Credit - retention of credit that enabled obtaining of refund under rule 5 of CENVAT Credit Rules 2004 - HELD THAT - The appellant was exporting almost 98% of turnover for the period upto March 2010 and about 87% thereafter is a finding in the impugned order that has not been controverted in appeal of Revenue. That such exports should not have to bear the burden of duties inhering in the goods is undeniable and therefore if not refund under rule 5 of CENVAT Credit Rules 2004 rebate was allowable under Central Excise Rules 2002 with option left to assessee. The denial of credit was not enforced immediately upon grant of exemption; instead resort was had to section 11A of Central Excise Act 1944 and consequently rebate was not an available option. This militates against the contention of Learned Authorized Representative that the cited Explanation has retrospective effect. The denial of credit was not enforced immediately upon grant of exemption; instead resort was had to section 11A of Central Excise Act 1944 and consequently rebate was not an available option. This militates against the contention of Learned Authorized Representative that the cited Explanation has retrospective effect. We therefore examine the entitlement in terms of operation under the CENVAT credit scheme. As we have premised this is a dispute about eligibility for retention of credit availed validly under rule 3 of CENVAT Credit Rules 2004. It is only upon deployment of such goods in the production of exempted goods which menthol crystal was since 1st March 2008 that rule 6(1) of CENVAT Credit Rules 2004 is brought to bear - to the extent that inputs were deployed in goods that have been exported availment of credit is not faulted. Even if exempted goods were removed on bond for export after March 2010 that procedural lapse with its own attendant consequence has no bearing on eligibility for retention of credit. Therefore only the availment of credit in relation to inputs used in production of domestically cleared goods remain. There can be no dispute on availment of credit of duty paid on attributable goods till March 2010 as these were cleared on payment of duty. For the period thereafter it is on record that the default provision in rule 6(3) of CENVAT Credit Rules 2004 for payment of 10% of value of exempted goods cleared domestically would entitle retention of credit. The impugned order and appeal of Revenue appear to have in their respective contentions which do not relate to the same input misconstrued the meaning of common and the bar on retention which are applicable to both categories of inputs raw materials and consumables that are used in production - None of the goods in the dispute are consumables and owing to export as well discharge of duty liability or liability of 10% on value of domestically cleared goods there is no scope for recovery under rule 14 of CENVAT Credit Rules 2004 or section 11A of Central Excise Act 1944. Other consequences too fail. The demand fastened on assessee in the impugned order does not sustain. Appeal of assesse is allowed.

Summary

Issues:
The judgment involves issues related to the impact of procedural developments on exports, exemption accorded to manufactured goods, and CENVAT Credit Rules, 2004.

Issue 1: Impact of Procedural Developments on Exports and CENVAT Credit Rules
The dispute arises from developments in procedure stipulated for exports and exemption accorded to manufactured goods impacting recourse to CENVAT Credit Rules, 2004. The appellant accumulated credit and claimed refunds under rule 5 of CENVAT Credit Rules, 2004 until May 2010 when changes in notifications affected their ability to continue this practice.

Issue 2: Availment of CENVAT Credit on Inputs for Manufacture
The appellant contended that the inputs used in the production of 'menthol crystal' entitled them to avail duty credit under rule 12 of CENVAT Credit Rules, 2004. They argued for rightful availment based on various court decisions supporting their claim. The Revenue, on the other hand, disputed the eligibility of inputs used in manufacturing exempted goods.

Issue 3: Denial and Recovery of CENVAT Credit
The impugned order proposed denial and recovery of availed credit on inputs, including 'mentha oil' and packaging material, used in the production process. The order held that while credit for dutiable goods was acceptable, certain recoveries were justified based on the rules of CENVAT Credit.

Issue 4: Eligibility for Retention of Availed Credit
The dispute focused on the retention of credit availed under rule 3 of CENVAT Credit Rules, 2004, particularly concerning the production of exempted goods. The appellant argued for the eligibility of credit retention, emphasizing the impact of exports and discharge of default obligations on their production process.

Issue 5: Interpretation of CENVAT Credit Rules and Exemption Provisions
The judgment analyzed the application of CENVAT Credit Rules, particularly rule 6(1), in relation to the deployment of inputs in the production of exempted goods. It clarified the conditions under which credit retention was permissible and the implications of procedural changes on credit availment.

In conclusion, the appeal of Revenue was dismissed, and the demand on the assessee was not sustained, leading to the allowance of the appellant's appeal.