By TIOL News Service

NEW DELHI, DEC 24, 2012: WHILE it is quite normal for the assessees to receive show cause notices for not paying Central Excise duty, it is not uncommon to receive notices also for “paying duty”. Likewise, normally notices are issued for availing CENVAT Credit, but in this case, the assessee had to face the notice for “failing to avail CENVAT Credit”. Confusing? Please read further.

The appellant is a unit engaged in the manufacture of P & P Medicaments, located in the area of Jammu. During the relevant period, the appellant was availing the area based exemption Notification No.56/2002-CE dt.14.11.02. In terms of the said notification, the appellant is required to pay duty by first exhausting their CENVAT credit available and then through PLA. The duty paid through PLA would be refunded to them subsequently by self credit procedure.

The appellant received furnace oil during the period April, 05 to March, 09 and did not take credit, resulting in payment of duty to the extent of Rs.41 ,71,424 /- by cash, through PLA. The said duty so paid by them was subsequently refunded to them.

The appellant subsequently took CENVAT credit on 14.8.09 thereafter the said credit was utilized by them for payment of duty on their final product cleared and balance was paid through PLA. As such, less duty was paid through PLA in August, 2009, thus resulting in less refund of duty paid in cash.

The appellant was issued a Show Cause Notice proposing to recover the erroneously availed refund of Rs.41 ,71,424 /- as the credit was to be exhausted first and then only refund should be filed. The demand was confirmed by the Adjudicating Authority.

While disposing the stay application, the Member (J) held:

At this prima facie stage, we find that if the credit of Rs.45 lakhs approximately would have been availed by the appellant during the period Apri,05 to March, 09 and the duty paid by the in cash would have been less by Rs.41,71,424/-. In that case, the credit was not available in the subsequent period, in August, 09, when the same was actually taken by the appellant. Thus, duty payable in August, 09 from PLA would have been on the higher side, thus resulting in refund of higher amount of duty of that particular point of time and there is no revenue loss and the entire exercise is Revenue neutral.

However, the Member (T) differed with the above view and held:

The arguments are raised to point out that conclusion regarding revenue neutrality should not be arrived at based only on facts that are disclosed to the Tribunal. The Tribunal is expected to go by law as it is notified. The wording of the notification is explicit that the exemption is available only to the extent of duty liability that is more than Cenvat Credit available. The notification also enjoins that the manufacturer should first exhaust Cenvat credit available. The order recorded by Member (Judicial) has the effect of negating the above express provisions of law which the Tribunal is expected not to do. So in my view pre-deposit should be called for at least in respect of excess exemption availed for the period after 01-04-08.

On reference to the third Member, the third Member agreed with the Member (T) by holding that:

It is settled law that benefit of a Notification is to be strictly construed so as to achieve the object thereof. Right to exemption of duty (refund) arises only upon fulfilling mandatory conditions of the Notification in question which prescribed priority, mode and sequence of discharge of duty liability during tax holiday period Deviation thereto debars exemption (refund).

Observation of learned technical Member in this regard cannot be brushed aside since claim for Modvat credit was within the exclusive knowledge of appellant in view of its past experience of several years being engaged in the line of manufacture. Failure of appellant to set off Modvat credit diminished its right to exemption (refund) and the plea of revenue neutrality is baseless for non- fulfilment of statutory obligation.

Accordingly the appellant was directed to pre-deposit the amount of excess exemption availed.

(See 2012-TIOL-1923-CESTAT-DEL)