CX - Duty paid on Zinc Dross by supplier would not partake character of excise duty, however, when Department did not dispute classification of such supplier manufacturer and accepted duties, CENVAT credit cannot be denied: HC
By TIOL News Service
AHMEDABAD, APRIL 28, 2014: THE assessee purchased Zinc Dross which was a byproduct of a manufacturing activity carried on by the supplier of the goods. The supplier paid excise duty on the basis that the product was excisable. The department also accepted the assessment and classification claimed by the supplier and appropriated the duty as declared.
The assessee took CENVAT credit of the duty paid by the supplier on Zinc Dross and this was denied by the Revenue authorities but the CESTAT allowed the same by relying on the decision in Commissioner of Central Excise & Customs v. MDS Switchgear Ltd. - 2008-TIOL-245-SC-CX.
Against this order of the CESTAT, the Revenue has filed a Tax appeal before the Gujarat High Court raising the following questions -
(A) Whether in the facts and circumstances of the Hon'ble Customs, Excise and Service Tax Appellate Tribunal (CESTAT) West Zonal Bench, Ahmedabad, while passing Order no.A/10878/WZB/AHD/13 dated 23.07.2013 has committed an error allowing the CENVAT Credit of duty on the basis of the duty purportedly paid on the goods exempted from payment of Excise duty?
(B) Whether in the facts and circumstances of the case the Hon'ble CESTAT has committed an error in concluding that CENVAT Credit on the inputs received is admissible to the respondent on the ground that no action is taken by the Revenue at the supplier's end, especially when there are no provisions of law for such action?
(C) Whether in the facts and circumstances of the case it was obligatory upon the Hon'ble CESTAT to apply the ratio of the cited judgement to the facts of the present case and same be reflected in the order?"
The High Court observed that in the case of Tata Iron and Steel Co. Ltd - 2004-TIOL-25-SC-CX, the Supreme Court had held that there was no excise duty liability on the sale of Zinc Dross.
The counsel for the department invited the attention of the High Court to Rule 3 of the CCR, 2004, and submitted that the manufacturer or producer of final products or a provider of taxable service is allowed to take CENVAT credit of the duty of excise specified in the First Schedule to the Excise Tariff Act. Inasmuch as since in the present case the product was not dutiable, no CENVAT credit could be availed and the amount deposited by the manufacturer was not duty.
The respondent assessee submitted that the department had accepted the assessment of the supplier of the goods; such goods were received by the respondent as input and utilised for manufacture of final products and thus the conditions for availing CENVAT credit were satisfied. Support is drawn from the following decisions to justify the availment viz. MDS Switchgear Ltd. - 2008-TIOL-245-SC-CX as well as Sarvesh Refractories (P) Ltd. - 2007-TIOL-233-SC-CX.
The High Court observed -
++ Insofar as the respondent is concerned, he had purchased the inputs and utilised the same for manufacture of a final product. Such goods were duty paid. Rule 3 and 4 of the CENVAT Credit Rules, 2004, thus would enable him to avail the CENVAT credit. It is a different thing that the supplier of the goods to the respondent paid excise duty on such product under mistaken belief.
++ In law as declared by the Supreme Court in case of Collector of Central Excise, Patna. vs. Tata Iron and Steel Co. Ltd(supra), no duty was payable on such product. Strictly speaking therefore, such amount deposited by the original manufacturer would not partake the character of excise duty.
++ However, when the department did not dispute the classification of such manufacturer, accepted the declarations and duties, CENVAT credit of such duty cannot be declined to the purchaser of the goods who otherwise fulfilled all conditions for availing CENVAT credit thereof.
Holding that the case on hand is substantially similar to the one before the Supreme Court in case of MDS Switchgear Ltd.(supra), the tax appeal was dismissed.
In passing: The CBEC vide Circular 911/01/2010-CX dated 14/01/2010 had issued the following instruction -
(i) In cases where the process undertaken by an assessee indisputably does not amount to manufacture, the department should inform the assessee about the correct legal position and advise him not to pay duty and not to avail credit on inputs.
(ii) If the assessee has already paid duty, and in a situation where there is no manufacture as held by the Courts subsequently, and facts of the case are covered by the provisions of Section 5B of the Central Excise Act, 1944, the assessee is at liberty to approach the Central Govt. for issue of appropriate notification for regularization of the Cenvat credit availed.
Perhaps, it is time for the Board to take a fresh look at this Circular.
(See 2014-TIOL-582-HC-GUJ-CX)
