TMI Blog2017 (8) TMI 594X X X X Extracts X X X X X X X X Extracts X X X X ..... ilize the CENVAT Credit legally availed during the first 5 days or 6 days of the subsequent month for paying the duty of the excise for the goods cleared in the previous month. Proviso to Sub Rule (4) of Rule 3 of the CENVAT Credit Rules can be said to be ultra vires to Rule 3(1) of the CENVAT Credit Rules as it does not have any nexus with the object sought to be achieved by the Rules and in fact runs contrary to the principles of CENVAT Credit Rules. The proviso to Sub Rule (4) of Rule 3 of CENVAT Credit Rules is held to be ultra vires and unconstitutional to the Scheme of CENVAT Credit - the appropriate authority to adjudicate the show cause notice accordingly and consider and /or treat the proviso to Sub Rule (4) of Rule 3 of CENVAT Credit Rules as unconstitutional, in accordance with law. Petition allowed - decided in favor of petitioner. - Special Civil Application No. 5101 of 2016 - - - Dated:- 28-7-2017 - M. R. Shah And B. N. Karia, JJ. Mr Paresh M Dave, Advocate for the Petitioner Mr Devang Vyas, Assistant Solicitor General Of India for the Respondent JUDGMENT ( Per : Honourable Mr. Justice M. R. Shah ) [1.0] RULE. Ms. Trusha Patel, lear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5th or 6th day of the next month and if there was late payment then the manufacturer assessee should also pay interest on the amount of excise duty payable by him for the concerned month. It is the case on behalf of petitioner no.1 that for avoiding cascading effect of duty paid on input /capital goods /input services on the final products manufactured by an assessee, the Central Government has been allowing credit of duty paid on inputs and capital goods as well as service tax paid on input services when they were used in relation to manufacture of excisable final products. The Scheme is popularly known as CENVAT Credit Scheme and the Scheme is presently governed by the CENVAT Credit Rules, 2004. Rule 3 of the CENVAT Credit Rules is the enabling provision and it allows a manufacturer of final products to take credit of excise duty and service tax paid on any inputs, capital goods and input services as the case may be and such CENVAT Credit is allowed to be utilized for payment of any duty of excise on any final product. However, by virtue of the first proviso to Sub Rule (4) of Rule 3 of the CENVAT Credit Rules, a restriction is placed on utilization of CENVAT Credit by layin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alidity and constitutionality of the proviso to Rule 3(4) of the CENVAT Credit Rules in so far as it restricts utilization of CENVAT Credit for discharging duty liability incurred by the manufacturer. [2.5] It is the case on behalf of petitioner no.1 that proviso to Rule 8(3A) of the Central Excise Rules is also invoked in the show cause notice. However, the said proviso is held to be unconstitutional by this Court in the case of Indsur Global Ltd. Vs. Union of India reported in 2014 (310) ELT 833 (Guj.) It is submitted that therefore the impugned show cause notice also deserves to be quashed and set aside as provisions of Rule 8(3A) of the Central Excise Rules is held to be unconstitutional. [3.0] Shri Paresh Dave, learned advocate has appeared on behalf of the petitioners, Shri Devang Vays, learned Assistant Solicitor General of India has appeared on behalf of respondent no.1 Union of India and Shri Priyank Lodha, learned advocate has appeared on behalf of respondents nos.2 and 3. [3.1] Shri Paresh Dave, learned advocate appearing on behalf of petitioner no.1 assessee has vehemently submitted that the first proviso to Sub Rule (4) of Rule 3 of the CENVAT Credit Rules ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dit Rules is ultra vires of Section 37 of the Central Excise Act. It is further submitted by Shri Paresh Dave, learned advocate appearing on behalf of the petitioners that even otherwise the proviso to Sub Rule (4) of Rule 3 of the CENVAT Credit Rules is even otherwise illegal and as such ultra vires to Rule 3(1) as it does not have any nexus to the object sought to be achieved by the Rules and in fact runs contrary to the underlying principle of the CENVAT Credit Rules. It is submitted by Shri Paresh Dave, learned advocate appearing on behalf of the petitioners that as held by the Hon ble Supreme Court, this Court as well as other High Courts and catena of decisions, the CENVAT Credit is indefeasible and there is no co-relation of the raw material and the final product. It is submitted that it is not as if credit could be taken only a final product that is manufactured out of the particular raw material to which the credit was related. It is submitted that the credit may be taken against the excise duty on final product manufactured on the very day that it becomes available. It is submitted that the credit under the CENVAT Scheme is as good as tax paid . It is submitted that in v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cise Registration No. and Service Tax Registration No. It is submitted that as it was observed that petitioner no.1 has cleared the finished goods during the default period i.e. April, 2013 to September, 2014, which are deemed to be cleared without payment of duty in terms of Rule 3(2) of the CENVAT Credit Rules, 2004, and therefore, by the impugned show cause notice the petitioners are required to show cause to the Commissioner, Central Excise, Customs Service Tax, Silvasa Commissionerate having its office at Vapi as to why demand made therein may not be confirmed. It is submitted that therefore the cause of action for filing the petition has arisen at Silvasa located within the Union Territory of Daman. Considering Clause B of Section 36 of the Central Excise Act, which contains the definition of the term High Court in relation to Union Territory of Daman and Diu and Dadra Nagar Haveli jurisdiction would be of the High Court of Bombay. It is submitted that therefore in that view of the matter, it is requested not to entertain the present petition for want of territorial jurisdiction. [4.3] In support of the above submissions, Department has heavily relied upon the order pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allenged before the Hon ble Supreme Court and the Hon ble Supreme Court has stayed the said judgment and order. It is submitted that therefore when the entire judgment and order of this Court in the case of Indsur Global Ltd. (Supra) has been stayed Rule 8(3A) of the CENVAT Credit Rules shall be applicable. [4.7] Now so far as reliance placed upon the decision of the Hon ble Supreme Court in the case of Dai Ichi Karkaria Ltd. (Supra) is concerned, it is submitted that the said decision shall not be applicable as the same was with respect to the Modvat credit in which the limitation provided under the first proviso to Sub Rule (4) of Rule 3 is not there. [4.8] Now so far as challenge to the impugned show cause notice is concerned, it is vehemently submitted that as the proceedings before the appropriate authority are at the stage of show cause notice and ample opportunity shall be available to the petitioners to put forward its case, the present petition challenging the show cause notice may not be entertained and the petitioner may be relegated to participate in the proceedings before the authority. Making the above submission, it is requested to dismiss the present petition. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id [for compounding and the manner of compounding] under sub-section (2) of section 9A;]; (ii) prohibit absolutely, or with such exceptions, or subject to such conditions as the Central Government thinks fit, the production or manufacture, or any process of the production or manufacture, of excisable goods, or of any component parts or ingredients or containers thereof, except on land or premises approved for the purpose; (iii) prohibit absolutely, or with such exceptions, or subject to such conditions as the Central Government thinks fit, 7[***] the transit of excisable goods from any part of 8[India] to any other part thereof; (iv) regulate the removal of excisable goods from the place where produced, stored or manufactured or subjected to any process of production or manufacture and their transport to or from the premises of a 9[registered] person, or a bonded warehouse, or to a market; (v) regulate the production or manufacture, or any process of the production or manufacture , the possession, storage and sale or salt, and so far as such regulations essential for the proper levy and collection of the duties imposed by this Act, or of any other excisable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olar heat in evaporating pans... 10 License to manufacture sulphate of soda (Kharunun) by artificial heat ... 2 License to manufacture other saline substances... 2 (xiii) provide for the detention of goods, plant, machinery or material, for the purpose of exacting the duty, the procedure in connection with the confiscation, otherwise than under section 10 or section 28, of goods in respect of which breaches of the Act or rules have been committed, and the disposal of goods so detained or confiscated; [(xiiia) provide for withdrawal of facilities or imposition of restrictions (including restrictions on utilisation of CENVAT credit) on manufacturer or exporter or suspension of registration of dealer, for dealing with evasion of duty or misuse of CENVAT credit;] (xiv) authorities and regulate the inspection of factories and provide for the taking of samples, and for the making or tests, of any substance produced therein, and for the inspection for search of any place or conveyance used for the production, storage, sale or transport of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provide for publication, subject to such conditions as may be specified therein, of names and other particulars of persons who have been found guilty of contravention of any of the provisions of this Act or of any rule made thereunder;] (xxii) provide for the charging of fees for the examination of excisable goods intended for export out of India and for rendering any other service by a Central Excise Officer under this Act or the rules made thereunder;] (xxiii) specify the [form and manner] in which application for refund shall be made under section 11B; (xxiv) provide for the manner in which money is to be credited to the fund; (xxv) provide for the manner in which the fund shall be utilised for the welfare of the consumers; (xxvi) specify the form in which the account and records relating to the fund shall be maintained;] (xxvii) specify the form in which the account and records relating to the fund shall be maintained;] (xxviii) specify the persons who shall get themselves registered under Section 6 and the manner of their registration.] (xxviii) provide for the lapsing of credit of duty lying unutlised with the manufacturer of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le to the Excise Tariff Act, leviable under the Excise Act; [Provided that CENVAT Credit of such duty of excise shall not be allowed to be taken when paid on any goods- (a) in respect of which the benefit of an exemption under Notification No.1/2011-C.E., dated the 1st March, 2011 is availed; or (b) specified in serial numbers 67 and 128 in respect of which the benefit of an exemption under Notification No.12/2012-C.E., dated the 17th March, 2012 is availed;] (ii) the duty of excise specified in the Second Schedule to the Excise Tariff Act, leviable under the Excise Act; (iii) the additional duty of excise leviable under section 3 of the Additional Duties of Excise (Textile and Textile Articles) Act,1978 ( 40 of 1978); (iv) the additional duty of excise leviable under section 3 of the Additional Duties of Excise (Goods of Special Importance) Act, 1957 ( 58 of 1957); (v) the National Calamity Contingent duty leviable under section 136 of the Finance Act, 2001 (14 of 2001); (vi) the Education Cess on excisable goods leviable under section 91 read with section 93 of the Finance (No.2) Act, 2004 (23 of 2004); [(via)the Secondary and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... zette of India vide number G.S.R. 547 (E), dated the 25th March, 1986, and received by the manufacturer for use in, or in relation to, the manufacture of final product, on or after the 10th day of September, 2004. [Provided that the CENVAT Credit shall be allowed to be taken of the amount equal to central excise duty paid on the capital goods at the time of debonding of the unit in terms of the para 8 of the Notification No.22/2003 Central Excise, published in the Gazette of India, Part II, Section 3, Sub Section (I) vide Number G.S.R. 265 (E), dated, the 31st March, 2003.] Explanation.- For the removal of doubts it is clarified that the manufacturer of the final products and the provider of output service shall be allowed CENVAT credit of additional duty leviable under section 3 of the Customs Tariff Act on goods falling under heading 9801 of the First Schedule to the Customs Tariff Act. (2) Notwithstanding anything contained in sub-rule (1), the manufacturer or producer of final products shall be allowed to take CENVAT credit of the duty paid on inputs lying in stock or in process or inputs contained in the final products lying in stock on the date on which any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shall, respectively, be utilized only for payment of duty on final products, in respect of which exemption under the said respective notifications is availed of: Provided also that no credit of the additional duty leviable under sub-section (5) of section 3 of the Customs Tariff Act, as amended by clause 72 of the Finance Bill, 2005, the clause which has, by virtue of the declaration made in the said Finance Bill under the Provisional Collection of Taxes Act, 1931, the force of law, shall be utilised for payment of service tax on any output service: Provided also that the CENVAT credit of any duty mentioned in sub-rule (1), other than credit of additional duty of excise leviable under clause 85 of the said Finance Bill, the clause which has, by virtue of the declaration made in the said Finance Bill under the Provisional Collection of Taxes Act, 1931, the force of law, shall not be utilised for payment of said additional duty of excise on final products. (5) When inputs or capital goods, on which CENVAT credit has been taken, are removed as such from the factory, or premises of the provider of output service, the manufacturer of the final products or provider of o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the other provisions of these rules.] [(5C) Where on any goods manufactured or produced by an assessee, the payment of duty is ordered to be remitted under Rule 21 of the Central Excise Rules, 2002, the CENVAT Credit taken on the inputs used in the manufacture or production of said goods] shall be reversed.] Explanation 1 The amount payable under Sub Rules (5), (5A), (5B) and (5C), unless specified otherwise, shall be paid by the manufacturer of goods or the provider of output service by debiting the CENVAT credit or otherwise on or before the 5th day of the following month except for the month of March, where such payment shall be made on or before the 31st day of the month of March. Explanation 2 If the manufacturer of goods or the provider of output service fails to pay the amount payable under Sub Rules (5), (5A), (5B) and (5C), it shall be recovered, in the manner as provided in rule 14, for recovery of CENVAT Credit wrongly taken and utilized.] (6) The amount paid under [sub-rule (5A) shall be eligible as CENVAT Credit as if it was a duty paid by the person who removed such goods under [subrule (5) and sub-rule (5A)] (7) Notwithstanding an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... may be, of service tax leviable under the said Additional Duties of Excise (Textiles and Textile Articles) Act, 1978 or the National Calamity Contingent duty leviable under section 136 of the Finance Act, 2001 (14 of 2001), or the education cess on excisable goods leviable under section 91 read with section 93 of the Finance (No.2) Act, 2004, additional duty of excise leviable under section 157 of the Finance Act, 2003, or the education cess on taxable services leviable under section 91 read with section 95 of the said Finance (No.2) Act, 2004, or the additional duty of excise leviable under clause 85 of the Finance Bill, 2005, the clause which has, by virtue of the declaration made in the said Finance Bill under the Provisional Collection of Taxes Act, 1931 (16 of 1931), the force of law, respectively, on any final products manufactured by the manufacturer or for payment of such duty on inputs themselves, if such inputs are removed as such or after being partially processed or on any output service: Provided that the credit of the education cess on excisable goods and education cess on taxable services can be utilised, either for payment of the education cess on excisable g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in the previous month, and therefore, on one hand manufacturer is allowed as per Rule 8(1) of the Central Excise Rules, 2002 to pay the duties on the goods removed from the factory during the month by the 6th day of the following month. On the other hand, though the manufacturer may have CENVAT Credit in his account the same cannot be permitted to be utilized after the end of the month, more particularly, between the last day of the month and the 6th day of the following month, and therefore, proviso to Sub Rule (4) of Rule 3 of the CENVAT Credit Rules would be just contrary and /or in conflict with Rule 8(1) of the Central Excise Rules, 2002. A manufacturer can be and should be permitted to utilize the CENVAT Credit legally availed during the first 5 days or 6 days of the subsequent month for paying the duty of the excise for the goods cleared in the previous month. [5.2] Even otherwise, proviso to Sub Rule (4) of Rule 3 of the CENVAT Credit Rules can be said to be ultra vires to Rule 3(1) of the CENVAT Credit Rules as it does not have any nexus with the object sought to be achieved by the Rules and in fact runs contrary to the principles of CENVAT Credit Rules. At this stage ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Shri Vyas, learned Assistant Solicitor General of India that as the cause of action for filing the petition has arisen at Silvasa located within the Union Territory of Daman considering Clause B of Section 36 of the Central Excise Act that this High Court would not have any territorial jurisdiction and the Bombay High Court would have territorial jurisdiction is concerned, the aforesaid has no substance. Section 36B of the Act, upon which reliance has been placed shall be applicable only with respect to Chapter VI. For all other purposes and matters the High Court where the cause of action has arisen would have jurisdiction. In the present case as the impugned orders have been passed by the authority at Vapi and the impugned show cause notice has been issued by the authority at Vapi, this High Court would have territorial jurisdiction. Under the circumstances, such objection is hereby overruled. [7.0] In view of the above and for the reasons stated hereinabove, proviso to Sub Rule (4) of Rule 3 of CENVAT Credit Rules is held to be ultra vires and unconstitutional to the Scheme of CENVAT Credit. Now the appropriate authority to adjudicate the show cause notice accordingly an ..... X X X X Extracts X X X X X X X X Extracts X X X X
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