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Commissioner of Central Excise, Pune-I Versus Sandvik Asia Ltd.

2015 (10) TMI 2508 - CESTAT MUMBAI

Reversal of Cenvat Credit on inputs lying in stock - Conversion of DTA unit to 100% EOU - Deemed removal of inputs - Held that:- dispute has arisen from the morphing of the manufacturing operation as an Export Oriented Unit. - An infrequent occurrence, it is even more rare for such an occurrence to be accompanied by transfer of raw materials in this manner. That, probably, is one of the reasons for the absence of any reference to such a contingency in the CENVAT Credit Rules, 2002. It is more li .....

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ich CENVAT Credit has been taken are used in production, revenue is not jeopardized. Instead of procuring goods without payment of duty, the respondent has used already duty neutralized goods for manufacture of export goods. Had the CENVAT Credit been reversed by the erstwhile unit before the conversion, the newly minted Export Oriented Unit would be entitled to avail CENVAT Credit of like amount. These circumstances of revenue neutrality are a clear pointer to the rationale for redundancy of .....

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al Excise (Appeals), Pune I setting aside the order of the lower authority by which duty of ₹ 33,30,162/- was confirmed, with interest thereon, besides imposing penalty of ₹ 8,32,500/-. 2. Proceedings were initiated against M/ Sandvik Asia Ltd on 30th September 2005 in connection with CENVAT Credit availed by them prior to 1st September 2004 on raw materials received at their factory in Dapodi for manufacture of tools. A part of the said plant was, in accordance with procedure pres .....

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rt Oriented Unit after 1st September 2004 was tantamount to removal and non-utilisation for manufacture of excisable goods; such removal should have been preceded by reversal of the credit taken on such goods. Hence, the assessee was held liable to duty equivalent to the CENVAT Credit that had been wrongly availed in contravention of Rule 2(g) of CENVAT Credit Rules, 2002. It is that finding of the original authority that was set aside in the impugned order which is the subject of this appeal. 4 .....

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authority had failed to take into consideration the finding of the lower authority that clearance of goods by Export Oriented Units are at par with imported goods. 5. Learned Counsel for respondent took us through the CENVAT Credit Rules, 2002 and the erstwhile MODVAT Rules. He placed particular emphasis on the decision of the Tribunal in Sandoz Pvt Ltd v Commissioner of Central Excise, Belapur [2011-TIOL-673-CESTAT-MUM] affirmed by the Hon ble High Court of Bombay in Commissioner of Central Ex .....

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ct at all on revenue. The transformation does not alter the works undertaken in the unit. Nor is the statutory jurisdiction altered. Eligibility for CENVAT Credit remains unchanged except that, as an Export Oriented Unit, duty-free procurement is an alternative. 7. Excise duty is fastened on goods and not on the status of the manufacturer; payment of duty and availment of credit of duty so paid is in relation to goods. As long as the goods on which CENVAT Credit has been taken are used in produc .....

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T Credit Rules. 8. We also find that not only is there no revenue impact but that there is no transfer at all. The role of M/s Sandvik Asia Ltd in the manufacturing premises remains unchanged. There is no transfer to speak of, much less removal of raw materials. Hence, the provision of CENVAT Credit Rules cited by the original authority to confirm the demand is clearly inapplicable. 9. The Tribunal in re Sandoz Pvt Ltd, taking note of identical submissions canvassed on behalf of Revenue in near- .....

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appellant was not allowed to utilise the CENVAT credit for payment of duty in respect of their clearance to DTA unit. When CENVAT credit cannot be utilised for the purpose of paying duty in respect of DTA clearance, such credit available in the books of account would be utilised by the 100% EOU. Further, the very fact that when utilization is not permitted it means availment is also not permitted. He submitted that the Commissioner has relied upon the Board's Circular no. 77/99-Cus dated 18. .....

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epartment cannot insist upon reversal of the CENVAT credit available in the books of accounts or recovery of the same if the same has been utilised. Since we are in full agreement with the reasoning adopted by the Tribunal in Sun Pharmaceuticals Industries Ltd. (supra), it would be appropriate to reproduce the relevant paragraphs of the said decision: 6. We have carefully considered the case records and the submissions by both sides. We find that Sun had not violated the provisions of Rule 3 (1) .....

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o an EOU. Therefore, the contravention of provisions of Rule 3 (1) and 3(4) of CCR and Rule 11 of CER alleged in the show cause notice has not occurred. Therefore, the consequential demand of cenvat credit relating to the inputs at the time of conversion of Sun into an EOU and the liability to penalties proposed did not exist. Therefore, the orders of the lower authorities are not sustainable. 7. In CCR'02, or CCR'04, there exist no provisions barring an EOU from availing cenvat credit o .....

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;01 superseded by CER'02, by the Board, and in force on the date the erstwhile rules were rescinded shall, to the extent they are relevant and consistent with the new set of rules shall be deemed to be valid. CBEC Circular No. 77/99-Cus dated 18.11.99 is reproduced below:- Paragraph 9.28 of the EXIM Policy, 1997-2002 provides that existing DTA units may also apply for conversion into an EOU/EHTP/STP, but no concession in duties and taxes would be available under the scheme for plant, machine .....

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and cleared before its conversion into EOU/EHTP/STP, the same is not required to be demanded on its conversion into EOU/EHTP/STP. However, if the Modvat credit so availed of is lying in balance as unutilized on the date of conversion into EOU/EHTP/STP, it would lapse on conversion of DTA unit into EOU/EHTP/STP unit and cannot be utilized after such conversion. This circular was issued during the currency of CER, 1944, which contained Rule 100H which disentitled an EOU to the Cenvat scheme. The C .....

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unit carrying over inputs and the cenvat credit balance in its accounts when it got converted into an EOU. We also observe that this Tribunal in Waterbase Ltd. Vs. CCE, Guntur reported in 2005 (187) ELT 346 (Tri.-Bang.) = (2005-TIOL-947-CESTAT-BANG) had made the following observations. "6. We have gone through the rival contentions. The appellants have informed their intention of taking Cenvat credit. The Department acknowledged the intimation sent by the appellants. In these circumstances, .....

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t. However, in view of Rule 17 of the Central Excise Rules, the duty should be paid by a 100% E.O.U. only through account current. Account current refers to PLA. In view of this position, the appellant cannot pay duty through Cenvat credit. In that case, the appellant will not be in a position to utilize the Cenvat credit at all and it does not make any sense to allow him to take credit. The inconsistency between Cenvat Rules and Central Excise Rules can be removed only by the legislature. As su .....

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icators reported in 2002 (140) ELT 277 (Tri.-LB) = (2002-TIOL-274-CESTAT-DEL-LB cited by the Ld. Counsel for the appellants, this Tribunal held as follows:- a manufacturer obtains credit for the excise duty paid on raw material to be used by him in the production of an excisable product immediately it makes the requisite declaration and obtains an acknowledgement thereof. It is entitled to use the credit at any time thereafter when making payment of excise duty on the excisable product. There is .....

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