By TIOL News Service

MUMBAI, JUNE 14, 2013: THE applicants are engaged in the manufacture of Organic Chemicals. The demands are confirmed after denying the CENVAT credit availed of the duty paid on intermediate products supplied by M/s Godrej Industries Ltd. and M/s. VVF Ltd.

The notification drawn into the vortex of the present proceedings is notification 44/2001-CE(NT). It needs mention that the subject notification is issued in exercise of the powers conferred by rule 19 of the CER, 2001 and it notifies the conditions, safeguards and procedures for removal of excisable goods (referred to as the" intermediate goods") from the place of manufacture or warehouse without payment of duty for the purpose of use in the manufacture or processing of all articles (referred to as the "resultant articles") by a manufacturer who is an holder of a Duty Exemption Entitlement Certificate and an Advance Licence under the Duty Exemption Scheme (referred to as 'the ultimate exporter") and their exportation out of India, to any country except Bhutan.

The case of the Revenue is that the applicants were required to follow the prescribed procedure under Notification No. 44/2001-CE (NT) dated 26.6.2001 as amended and should have procured indigenous raw materials duty free from the local supplier under Advance Licence/Authorization letter. It is further alleged that the local supplier i.e. M/s Godrej Industries Ltd. and M/s VVF Ltd. colluded with the applicants and transferred their accumulated CENVAT Credit to the applicants by supplying the materials on payment of duty. Inasmuch as the two suppliers were required to supply the goods without payment of duty as per the conditions of Notification No.44/2001-CE(NT), availment of CENVAT credit by the applicant was not proper in law is the sum and substance in the proceedings.

The demands of duty of Rs.5,22,30,673/- and Rs.20,31,99,840/- respectively were confirmed by the CCE, Thane-I and, therefore, the appellant had filed a Stay application before the CESTAT.

The Bench while hearing the Stay application extracted the provisions of Notification No.44/2001-CE(NT) and noted at the outset that the same is a conditional notification.

Having remarked thus, the CESTAT observed -

"6. Further, we find that this notification is issued under Rule 19 of the Central Excise Rules and not under Section 5 of the Central Excise Act. The manufacturer has to follow the procedure laid down in the Notification. As the manufacturer has not followed the procedure, therefore, prima facie the manufacturers are not entitled for benefit of the Notification. The manufacturers cleared the goods on payment of duty and the applicants availed the credit.

7. Further, the allegation of collusion between the applicants and manufacturer-suppliers is in the show-cause notice, however, the manufacturer-suppliers have not been made party to the present proceedings. In these circumstances, the allegation of collusion is also not sustainable. As the manufacturers, who cleared the goods on payment of duty, are not party in the present proceedings and the applicants have only availed the credit of duty paid hence prima facie the applicants have a strong case for waiver of pre-deposit of dues. Accordingly, the pre-deposit of dues is waived and recovery of the same is stayed during pendency of the appeals. Stay petitions are allowed."

We had reported this order as (2013-TIOL-228-CESTAT-MUM).

The appeal was heard recently.

The appellant summed up their submissions thus -

+ that the appellants did not want or was not in a position to follow the procedure prescribed under Notification No. 44/2001-CE (NT) dated 26.6.2001 and, therefore, suppliers have not availed the benefit of duty free clearance.

+ that appellants cannot be compelled to follow the procedure and once they have not followed the procedure, they are not entitled to the benefit of Notification No.44/2001-CE(NT) dt 26.6.2001.

+ The duty has been paid by the suppliers of the raw material/input and they have availed the credit of the same. It is by now well established that duty paid by supplier cannot be denied as credit to the receiver of the goods.

+ that no action has been taken on the suppliers of the raw material and if duty was not payable, action should have been taken against them also.

+ that the Tribunal in case of Shakun Polymers - (2009-TIOL-2591-CESTAT-AHM ) has passed a favourable decision on the same issue.

The Revenue representative submitted that since the appellant along with suppliers were entitled to clear the goods duty free by following the procedure prescribed under Notification No. 44/2001-CE(NT), the duty paid by the supplier has to be considered as deposit with Government and the appellants are not entitled to avail the credit of the same; suppliers are eligible for deemed credit benefit which involved refund of terminal excise duty; suppliers have paid excise duty in order to shift the accumulated CENVAT Credit to the appellants.

The Bench observed -

"5. We have considered the submission of the both the sides. There is no dispute that appellants had taken invalidation letter/ARO. These documents were handed over to the suppliers who in turn would have taken the benefit available to them. These have not been cancelled or withdrawn by the appellants. However, it is also observed from the impugned order itself that the suppliers have not availed the refund of terminal excise duty. We also find from the documents submitted along with the appeal papers that the suppliers have in the relevant years paid very substantial duty from PLA and, therefore, the Revenue's contention regarding shifting of credit does not hold water. We have asked the Ld. AR to show any specific provisions under Central Excise law requiring the appellants to clear the goods in the said situation under Notification No. 44/2001-CE(NT) dt. 26.6.2001 Only. We have also seen the Notification and the connected rules. These rules do not require the appellants to necessarily clear the goods duty free by following the procedure under Notification No. 44/2001-CE(NT) dt 26.6.2001. We also note that overall there is no loss to the Revenue as the credit is being taken of the duty paid. If the appellants could have followed the Notification NO. 44./2002-CE(NT) dt 26.6.2001, no duty would have been paid by the suppliers and appellants would also have not got any credit. We also note that in the impugned order, Tribunal judgment in the case of M/s. Reliance Industries Ltd. reported in - (2009-TIOL-530-CESTAT-AHM) have been cited with lot of force. We have gone through the said judgement and we find that the issue involved in the said judgment was different and are not relevant to the facts of the present case. In fact, in the case of M/s. Reliance Industries Ltd., duty was being paid by the supplier and no objection was raised by the department. Objection raised was relating to valuation of supplies made. We also find the issue is exactly the same as directed by the Tribunal in the case of Shakun Polymers Ltd. Vs. CCE reported in - (2009-TIOL-2591-CESTAT-AHM ). We do not find any reason not to follow the same."

In fine, the appeals were allowed.

In passing: Reality dawns on the Rs.25.54 Crore mirage.

(See 2013-TIOL-896-CESTAT-MUM)