TMI Blog2014 (12) TMI 952X X X X Extracts X X X X X X X X Extracts X X X X ..... and inventory, in accordance with the provisions of sub-Rule (3) of Rule 6, he shall pay an amount either equal to 10%/5% of the sale price of the exempted final product or equal to the Cenvat credit involved on the inputs/input services used in or in relation to manufacture of exempted final products, to be calculated as per the provisions of this sub-Rule. From a plain reading of the above sub-Rule (3) of Rule 11, it is clear that this rule applies, if - (a) one or more duty paid inputs in respect of which Cenvat credit has been taken, have been used in or in relation to manufacture of a final product which up to a certain date was dutiable and (b) that final product has become fully exempt from duty whether on option basis or absolutely from a particular date. - if any stock of Cenvat credit availed inputs is lying in stock or is in process or is contained in the final products lying in the stock as on the date of exemption, the Cenvat credit involved in respect of such inputs lying in stock or in process or contained in final product lying in the stock would be required to be paid by the manufacturer, which he can do by deducting that amount from the Cenvat credit balance, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es and in this case, neither the input duty drawback under the Drawback Rules nor the input duty rebate under Rule 18 of the Central Excise Rules, 2002 has been claimed, this plea is not valid. None of the present show cause notices, which are the subject matter of present appeals, either this allegation has been made or any evidence in this regard has been discussed. In the three show cause notices which culminated in the order-in-original No. 20-22/D-I/2009 dated 31/03/09 passed by the Commissioner, there is not even a whisper of this allegation. Even in the written submissions wherein this plea has been made, no evidence in support of this allegation has been disclosed. In any case, such an evidence is yet to be evaluated, as the show cause notices issued to M/s Ambika International, M/s Fine Aromatics, M/s Jay Ambey Aromatics and M/s Shiva Mint Industries and also to the respondent have not been adjudicated. - present matter cannot be decided on the basis of allegations made in the subsequent show cause notice dated 07/03/13 issued to the respondent and the show cause notices dated 29/10/12 and 04/10/12 issued to the respondent suppliers M/s Ambika International, M/s Fine Ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /03/08, when the Menthol Crystals BP/USP and Menthol BP/USP became fully exempt from duty, there was some opening balance of the Cenvat credit, which according to the Department, in terms of the provisions of Rule 11 (3) of the Cenvat Credit Rules, 2004, after reversing the Cenvat credit involved on the cenvated inputs lying in stock as on 01/03/08, cenvated inputs in process and the cenvated inputs contained in the stock of finished goods as on 01/03/08, the balance would lapse and in other words, this balance of Cenvat credit could neither be used for payment of duty on any dutiable final products nor its cash refund could be claimed under Rule 5 of the Cenvat Credit Rules, 2004. During the period from 01/03/08 to May 2009, the appellant continued to avail input duty Cenvat credit, even though the main final products - Menthol Crystals BP/USP and Menthol BP/USP had become fully and unconditionally exempt from duty. According to the Department during this period, the respondent could not avail the Cenvat credit as the main final product were fully exempt from duty, even though the other final products - Mentha Piperita Oil, Menthol (liquid), Rectified Spearmint Oil etc. were dutia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ile an application before the Tribunal under Section 35E (4) of the Central Excise Act, 1944 for correct determination of the points arising of the adjudication order as mentioned in the review order. In pursuance of this order of the Committee, the Commissioner filed an application before Tribunal under Rule 35E (4) of the Central Excise Act, 1944 which has been registered as an appeal No. E/3191/09 - EX by the Department. 1.4 The respondent during the period from March 2009 to December 2009 filed seven refund claims totalling ₹ 10,27,09915/- under Rule 5 of the Cenvat Credit Rules, 2004 for cash refund of the accumulated Cenvat credit which could not be utilized for payment of duty on domestic clearances or for payment of duty on the goods cleared for export. These refund claims were for period from March 2008 to December 2008. The refund had been claimed of the Cenvat credit taken in respect of inputs used in the manufacture of the finished goods which had been exported out of India under bond. The refund claims totalling ₹ 10,27,09,915/- were rejected by the Assistant Commissioner. But on appeals being filed to Commissioner (Appeals), the Assistant Commissioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... credit in respect of fresh receipt of inputs during period w.e.f. 01/03/08. Even if the final product Menthol Crystals BP/USP and Menthol BP/USP had been exported out of India, the provisions of Rule 6 (6) (V) of the Cenvat Credit Rules, 2004 would not be attracted and the appellant would not be entitled for Cenvat credit in respect of inputs, as the final products were fully exempt from duty and there is no question of their export under bond without payment of duty or under letter of undertaking in terms of the provisions of Rule 19 of the Cenvat Credit Rules, 2004 readwith Notification No. 42/01-CE (NT) dated 26/06/01. (ii) The respondents plea that the provisions of Rule 11 (3) would be applicable only if the impugned inputs were exclusively and solely used in the manufacture of exempt final product, is not correct as the entire inputs were put into processing to manufacture Menthol Crystals BP/USP and Menthol BP/USP, both exempt absolutely and unconditionally w.e.f. 01/03/08, and just because in course of processing of the raw menthol for manufacture of menthol crystals BP/USP and Menthol BP/USP, some residual oil is obtained which on further processing is converted into ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... India Ltd. vs. Union of India decided vide judgment reported in 2009 (235) E.L.T. 614 (Bom.) and the respondent s own case decided vide 2011 (270) E.L.T. 212 (Bom.). In the given context of Rule 6 (6) (V) of Cenvat Credit Rules, 2004, which draws its colour, context and ambit from Rule 19 of the Central Excise Rules, 2002 readwith Section 5A (1A) of Central Excise Act, the term excisable in Rule 6 (6) (V) ought to be interpreted as dutiable only, as otherwise the provisions of export under bond/LUT under Rule 19 of the Central Excise Rules would become meaningless and empty formality. In fact by Notification No. 24/10-CE (NT) dated 26/05/10 Notification No. 42/01-CE (NT) dated 26/06/01 prescribing procedure and conditions for export under bond/LUT without payment of duty under Rule 19 of Central Excise Rules, 2002, was amended and a condition was inserted in the Notification No. 42/01-CE (NT) providing that the export of excisable goods which are chargeable to nil rate of duty or are fully exempted from duty, other than the goods cleared by 100% EOU, is not allowed under this notification. The amending Notification No. 24/10-CE (NT) dated 25/05/10 should be treated as retrospe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le. In any case, since part of Cenvat credit in respect of inputs for Menthol Crystals/Menthol USP/BP has been used for payment of duty on flavouring agents exported under rebate claim, Rule 5 refund of that Cenvat credit is not permissible. It is the case of the respondent that they first claimed rebate of duty paid on the dutiable flavouring material on export and thereafter filed refund claim in respect of the balance amount. It is, thus, obvious that the respondent did not segregate inputs that went into the exempted final products and dutiable final products and consequently they claimed export rebate and Rule 5 refund simultaneously in respect of all their inputs and thereby attracting the mis-chief of the proviso to Rule 5 of the Cenvat Credit Rules, 2004. Learned Commissioner (Appeals) in his order No. 62/CE/DLH/10 dated 22/03/10 has over-looked the above breach of condition of refund under Rule 5 of the Cenvat Credit Rules, while sanctioning refund hence his order merits to be set aside. (vii) It is the case of the Revenue that refund under Rule 5 of Cenvat Credit Rules, 2004, going by the words of the said Rule as also the notifications issued under the said Rule, is r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 of the Cenvat Credit Rules, 2004. While the above issue is common with the issue in one of the cases in hand, the issue pertaining to the demand of ₹ 77.35 crores based on the provisions of Rule 11 (3) of Cenvat Credit Rules, 2004 is not covered by the said judgment of the Hon ble Bombay High Court. Similarly, the facts and issues in the judgment of Hon ble Bombay High Court in the case of Union of India vs. Sharp Menthol India Ltd. reported in 2011 (270) E.L.T. 212 (Bom.) are distinguishable from the facts of the cases in hand and, as such, the judgment of Hon ble Bombay High Court in the case of Union of India vs. Sharp Menthol India Ltd. (supra) is also not applicable to these cases. (xi) The inputs in this case had been received from four Jammu units availing of exemption under Notification No. 56/02-CE, namely - M/s Ambika International, M/s Fine Aromatics, M/s Jay Ambey Aromatics and M/s Shiva Mint Industries. Subsequent investigations revealed that these from Jammu suppliers of inputs had made only paper transactions with the respondent to generate Cenvat credit based on bogus invoices without any manufacture. Show cause notice to these four Jammu units and also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (Del.). Hon ble Bombay High Court in the case of Repro India Ltd. (supra) has held that when inputs are used in manufacture of dutiable as well as exempted final products and the exempted final products are exported out of India, the provisions of Rule 6 (6) (V) of the Cenvat Credit Rules, 2004 would be applicable and the bar of Rule 6 (1) of the Cenvat Credit Rules and the liability created under Rule 6 (3) (b) would not be attracted. In this judgment Hon ble Bombay High Court held that the words excisable goods in Rule 6 (6) of Cenvat Credit Rules, 2004 are wide enough to include both dutiable as well as exempted goods. Same view has been expressed by Hon ble Himachal Pradesh High Court in the case of CCE vs. Drish Shoes Ltd. (supra) and also by Hon ble Delhi High Court in the case of CCE, Delhi - I vs. Punjab Stainless Steel (supra) to the provisions of Rule 5 of Cenvat Credit Rules, 2004. (ii) Hon ble Bombay High Court in the respondents own case - Union of India vs. Sharp Menthol India Ltd. reported in 2011 (270) E.L.T. 212 (Bom.) vide judgment dated 06/04/11 has held that when Menthol Crystals fully exempt from duty were exported under bond under Rule 19 of the Central ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent dated 06/04/11 of Hon ble Bombay High Court, but still the judgment of Hon ble Bombay High Court was affirmed by the Apex Court vide order dated 04/04/12. (vi) As regards the allegation that the transaction between the supplier units - M/s Ambika International, M/s Fine Aromatics, M/s Jay Ambey Aromatics and M/s Shiva Mint Industries and the respondent regarding supply of Menthol and other raw material were bogus transactions and that only invoices had been issued by the Jammu units without supply of any material and in this regard show cause notices have been issued to these Jammu units and also to the respondent for recovery of the credit, this allegation had not been made in any of the show cause notices issued in the present appeals. It is well settled law that show cause notice is the foundation in the matter of levy and recovery of duty, penalty and interest and the Adjudicating Authority or appellate authority cannot travel beyond the allegations made in the show cause notice. 4.1 In view of the above submissions, it was pleaded that there is no infirmity in the orders passed by the Commissioner, Central Excise, Delhi - I and the Commissioner of Central Excise (Ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal products, to be calculated as per the provisions of this sub-Rule. 6.2 In accordance with the provisions of Rule 11 (3) of Cenvat Credit Rules, 2004, a manufacturer or producer of the final product shall be required to pay an amount equivalent to Cenvat credit, if any, taken by him in respect of inputs received for use in the manufacture of final product lying in his stock or in process or contained in the final product lying in his stock, if - (i) he opts for an exemption from whole of the duty excise leviable on such excisable product manufactured by him under a notification issued under Section 5A(i) of the Act or (ii) the said final product has been exempted absolutely by a notification issued under Section 5A(i) of the Act and after deducting the said amount from the balance of the Cenvat credit, if any lying in his credit, the balance, if any still remaining, shall lapse and shall not be allowed to be utilized for payment of duty on any final product whether cleared for home consumption or for export. 6.3 In this case even during period w.e.f. 01/03/08 onwards, the respondent continued to avail Cenvat credit in respect of the duty paid inputs received by them even t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; 14,04,09,663/- (opening balance of Cenvat credit as on 01/03/08) ₹ 27,43,50,554/- [Cenvat credit availed during March 2008 to July 2008], ₹ 24,74,15,042/- [Cenvat credit availed during July 2008 to December 2008] and ₹ 11,13,07,967/- [Cenvat credit availed during December 2008 to May 2009]. 7. Cash refund under rule 5 of the Cenvat credit Rules, 2004 was claimed of a part of the above Cenvat credit which could not be utilized for payment of duty on the clearances of flavouring material. Seven such refund claims were rejected by the Jurisdictional Assistant Commissioner, but on appeals being filed against the Assistant Commissioners order to Commissioner (Appeals), the Commissioner (Appeals) vide order-in-appeal No. 62/CE/DLH/10 dated 22/03/10 reversed the Assistant Commissioners orders and thereby allowed these refund claims totaling ₹ 10,27,09,915/-. The second appeal No. E/1027/2010 by the Revenue is against the order-in-appeal dated 22/03/10 of the Commissioner (Appeals). 8. The common issues involved in these appeals are as under:- (i) Whether in the background of the fact that when out of Cenvat credit availed Menthol, De-terpenated Fract ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , if - (a) one or more duty paid inputs in respect of which Cenvat credit has been taken, have been used in or in relation to manufacture of a final product which up to a certain date was dutiable and (b) that final product has become fully exempt from duty whether on option basis or absolutely from a particular date. In the above situation, if any stock of Cenvat credit availed inputs is lying in stock or is in process or is contained in the final products lying in the stock as on the date of exemption, the Cenvat credit involved in respect of such inputs lying in stock or in process or contained in final product lying in the stock would be required to be paid by the manufacturer, which he can do by deducting that amount from the Cenvat credit balance, if any, lying in his credit and the credit balance, if still left, shall lapse and the same cannot be utilized for payment of duty on any final product whether cleared for home consumption or for export or for payment of service tax on any output service whether provided in India or exported. Thus, in accordance with the provisions of this sub-rule, the balance credit shall lapse and cannot be utilized for any purpose whether for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6. In other words, the contention of the Revenue is that when some finished products which are fully exempt from duty are exported out of India under bond/LUT, under Rule 19 of the Central Excise Rule, 2002, the provisions of sub-Rule (6) of Rule 6 would not be applicable and accordingly, the provision of sub-Rule (1), (2), (3) of Rule 6 would become applicable and, therefore, the Cenvat credit in respect of inputs used in or in relation to manufacture of such final product would not be admissible in accordance with the provisions of sub-Rule (1). It is also the case of the Revenue that when some goods are fully exempt from duty, the furnishing of bond or LUT in respect of their export is an empty and meaningless formality and export of such goods cannot be said to be the export without payment of duty under bond or letter of undertaking and, therefore, the provisions of Rule 6 (1) or Rule 6 (2) readwith Rule 6 (3) of the Cenvat Credit Rule, 2004, would be applicable. We find that these points raised by the Revenue had been considered at length by Hon ble Bombay High Court in the case of Repro India Ltd. vs. Union of India (supra). In the case of Repro India Ltd. (supra) the appell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xport of the printed books which were fully exempt from duty, the provisions of Rule 6 (2) readwith Rule 6 (3) (b) of the Cenvat Credit Rules would not be applicable. It is seen that same view has been taken by Hon ble Himachal Pradesh High Court in its judgment in the case of Drish Shoes Ltd. 2010 (254) E.L.T. 417 (H.P.) and also by Hon ble Delhi High Court in the case of CCE, Delhi - I vs. Punjab Stainless Steel (supra). In the case of Punjab Stainless Steel, Hon ble High Court held in clear terms that manufacturer is entitled for Cenvat credit in respect of inputs used in exported goods, whether exempted or dutiable and the assessee has option either to claim drawback or to claim cash refund of the credit under Rule 5 of the Cenvat Credit Rules, 2004. It is seen that in the respondents own case decided by Hon ble Bombay High Court in the judgment reported in 2011 (270) E.L.T. 212 (Bom.), where in respect of the export of pipermint oil which had been cleared for export on payment of duty by debiting the same in the Cenvat credit account, the rebate of the duty so paid had been disallowed by the Assistant Commissioner, but the Commissioner (Appeals) had reversed the Assistant Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scribes the conditions to be observed and the procedure to be followed for the purpose of export under bond without payment of duty under Rule 19 (1) of the Central Excise Rules, 2002. The amendment made to Notification No. 42/01-CE (NT) dated 26/06/01 by the amending notification dated 26/05/10 restricts the scope of Rule 19 and after this amendment, the goods which are fully exempt from duty or are chargeable to nil rate of duty, cannot be exported under bond or LUT under Rule 19 and accordingly, if for manufacture of such exempted goods, any duty paid inputs have been used, the Cenvat credit of the duty paid on the inputs cannot be availed. Since this amendment adversely affects the manufacturers, the same cannot be given retrospective effect. 9. In view of the above discussion, neither the provisions of Rule 11 (3) of Cenvat Credit Rules, 2004, nor the provisions of Rule 6 (1) ibid are applicable to this case. As regards the Departments plea that the respondent cannot take cash refund of accumulated Cenvat credit under Rule 5 of Cenvat Credit Rules, 2004 as well as rebate of duty paid out of the same credit, since in this case, under Rule 5 of Cenvat credit Rules, 2004, pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... voked in the show cause notice, it would not be open to the Commissioner to invoke that Rule. Thus, in accordance with the ratio of this judgment, if some allegations based on certain evidence have not been made in the show cause notice, the Adjudicating Authority or the Appellate Authority cannot travel beyond the show cause notice and decide the matter by taking into account those allegations which had not been mentioned in the show cause notice. Therefore, in our view, the present matter cannot be decided on the basis of allegations made in the subsequent show cause notice dated 07/03/13 issued to the respondent and the show cause notices dated 29/10/12 and 04/10/12 issued to the respondent suppliers M/s Ambika International, M/s Fine Aromatics, M/s Jay Ambey Aromatics and M/s Shiva Mint Industries. Those Show Cause Notices have to be adjudicated by the Commissioner independently and can t be referred to or introduced in the present proceedings. Accordingly, we have laid down the law, based upon the allegations made in the present Show Cause Notice, as the subsequent notices are not the subject matter of the present appeals. The consequence of the adjudication proceedings of t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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