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2016 (6) TMI 998 - KARNATAKA HIGH COURT

2016 (6) TMI 998 - KARNATAKA HIGH COURT - TMI - Cenvat Credit - reversal of credit u/s 6 - clearance of final products to SEZ developers without payment of duty Whether the amendment to the Cenvat Credit Rules 2004, by substituting clause(i) of sub-rule (6) of Rule 6 of Cenvat Credit Rules 2004 by way of notification No.50/2008-C.E (N.T.) dated 31.12.2008 is prospective in operation or retrospective? - Held that:- Tribunal cannot be said to have committed error in following the decision of this .....

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referred matter. - revenue appeal dismissed - Decided against the revenue. - CEA NO. 16/2016 - Dated:- 10-6-2016 - MR. JAYANT PATEL AND MR. B.SREENIVASE GOWDA JJ. APPELLANT; (BY SRI Y HARIPRASAD, SR. CGSC) JAYANT PATEL J., JUDGMENT The present appeal is directed against the order dated 08.09.2015 passed by the Customs, Excise & Service Tax Appellate Tribunal (hereinafter referred to as the Tribunal for the sake of brevity), whereby the Tribunal, in view of the decision of this Court in case .....

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ever, he only submitted that the matter has been carried before the Apex Court against the decision of this Court and in view of the said development, the Tribunal ought to have independently considered the matter. 4. We may record that this Court in the above referred decision has observed thus: In all these appeals, the common question of law that arises for consideration is, Whether the amendment to the Cenvat Credit Rules 2004, by substituting clause(i) of sub-rule (6) of Rule 6 of Cenvat Cr .....

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ng units - one at Kuluvanahalli Post in Nelamangala Taluk, Bangalore and other at Ankleshwar, Gujarat. They are manufacturers of Admixtures, resin products and powder products falling under tariff headings 38244010, 38244090, 34031900, 32141000 etc., of Central Excise Tariff Act, 1985. The assessee was availing Cenvat Credit of the duty paid on inputs used in both dutiable and exempted final products cleared by them but were not maintaining separate accounts for receipt, consumption and inventor .....

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inputs used in the manufacture of goods cleared to SEZ Developers, nor had paid an amount equal to 10% of the total price, excluding sales tax and other taxes. Therefore, the assessee was issued show-cause notice by the Additional Commissioner and the Commissioner, LTU, Bangalore, demanding payment. After receipt of the explanation, the demand was confirmed under the provisions of section 11AC of the Central Excise Act, 1944 read with Rule 15(2) of the Cenvat Credit Rules 2004 along with interes .....

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ssee is entitled to the said benefit. Aggrieved by the said order, the revenue has preferred these appeals. 4. The question that arises for our consideration in these appeals are, Whether the Third amendment of 2008 to the Cenvat Credit Rules, 2004, extending the benefit of exemption from reversal of Cenvat credit on inputs used for manufacture in case of excisable goods, removed without payment of duty which are either cleared to a unit in a special economic zone or to a developer of a special .....

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and (4) shall not be applicable in case the excisable goods removed without payment of duty are either- (i) Cleared to a unit in a special economic zone. 6. As is clear from the aforesaid provision, the benefit of non- reversal/maintenance of separate inventory was extended when the excisable goods were cleared to a unit in a special economic zone. The said benefit was not extended when the excisable goods removed without payment of duty or cleared to a developer of a special economic zone for .....

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the Finance Act, 1994 (32 of 1994), the Central Government hereby makes the following rules further to amend the CENVAT Credit Rules, 2004, namely:- 1. (1) These rules may be called the CENVAT Credit (Third Amendment) Rules, 2008. (2) They shall come into force on the date of their publication in the Official Gazette. 2. In the CENVAT Credit Rules, 2004, in rule 6, in sub-rule (6), for clause (i), the following clause shall be substituted, namely:- (i) cleared to a unit in a special economic zon .....

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finding of the Tribunal that the notification is effective retrospectively from 10.9.2004 is beyond the scope of statutory provision and therefore, the impugned order is liable to be set-aside. 8. Per contra, the learned counsel appearing for the assessee supported the impugned order. 9. What is the effect of substitution of a provision in the place of an existing one is no more res-integra. The Constitution Bench of the Hon ble Apex Court in the case of SHAMARAO V. PARULEKAR vs. THE DISTRICT M .....

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the old words scored out so that there is no need to refer to the amending Act at all. 10. Yet another Constitution Bench of the Hon ble Supreme Court in the case of SHYAM SUNDER & Others vs. RAM KUMAR & Another reported in AIR 2001 SC page 2472, while dealing with the question whether a substituted provision necessarily means the amended provision is retrospective in nature has held as under: A substituted section in an Act is the product of an amending Act and all the effects and conse .....

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part of the Act from the very inception. 12. Recently, the Hon ble Apex Court in the case of GOVERNMENT OF INDIA VS. INDIAN TOBACCO ASSOCIATION reported in 2005(187) ELT PAGE 162 (SC), while dealing with the exemption notification which was issued by way of substitution, held as under:- 15. The word substitute ordinarily would mean to put (one) in place of another , or to replace . In Black s Law Dictionary, Fifth Edition, at page 1281, the word substitute has been defined to mean To put in the .....

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equence has been imposed. Only an obvious mistake was sought to be removed thereby. 17. There cannot furthermore be any doubt whatsoever that when a person is held to be eligible to obtain the benefits of an exemption notification, the same should be liberally construed. 13. The Parliament has enacted the Special Economic Zones Act 2005 (The SEZ Act for short) to provide for the establishment, development and management of the Special Economic Zones for the promotion of exports and for matters c .....

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loper. Such exports were exempted from duty of Central Excise under Section 26 of the SEZ Act, 2005 and consequently application of Cenvat Credit Rules. Section 151 of the Special Economic Zones Act 2005, overrides the provision of all other laws for the time being in force, notwithstanding anything inconsistent therein with the provision of the Special Economic Zones Act, 2005. This section therefore overreaches and eclipses the provisions of any other law containing provisions contrary to the .....

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the reason why it was brought by way of substitution . The effect of the said substitution is that the Cenvat Rules 2004 are to be read and construed as if the altered words had been written into the Rules of 2004 with pen and ink and the words to a developer of the SEZ for their authorized operation was there from the inception. This is the understanding of the Government as is also clear from the circular issued by the CBEC bearing No.29/2006-Cus., dated 27.12.2006 wherein clause 4 reads as u .....

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