CX - Revenue cannot argue against own Circular - Appellant has availed 20% of Cenvat Credit & forgone 80% on basis of pro rata use of inputs used in dutiable & exempted goods & this is sufficient compliance of rule 6 (2): CESTAT
By TIOL News Service
MUMBAI, DEC 28, 2015: THE appellant is engaged in the processing of manmade textile fabrics [Ch. 54 & 55]. The appellant availed credit of duty paid on grey fabrics (raw material) in terms of Rule 3 of CCR, 2004 and maintained prescribed records in respect of such availment and utilization.
The appellant processed grey fabrics on job work basis and also on its own. Vide Notification No. 29/2004-CE dated 9.7.2004 a concessional rate of duty has been prescribed for manmade textile fabrics if the manufacturer availed the benefit of cenvat credit of duty paid on inputs. So also, vide Notification No. 30/2004-CE dated 9.7.2004, total exemption from payment of duty was granted to manmade textile fabrics if the benefit of cenvat credit on input is not availed.
The appellant was availing the benefit of both the exemption Notifications 29/2004 and 30/2004 and was clearing final product without payment of duty and also on payment of duty.
The appellant used to take cenvat credit on grey fabrics to the extent of 20% of the total duty paid and forgoing the credit to the extent of 80% and similar practice was followed in respect of other inputs like dyes, chemicals etc. and this practice was based upon the ratio of clearances of dutiable and exempted final products, which was approximately 20:80.
The department did not agree with this methodology adopted by the assessee and issued two SCNs [Rs.3,90,223/- &Rs.3,02,860/-] for recovery of the CENVAT credit.
The adjudicating authority passed an ex-parte order dated 30.08.2006 confirming the demands and also imposed a penalty of Rs.20,000/- on the appellant.
The Commissioner (Appeals) directed the appellant to deposit the entire amount of Rs.6,93,083/- and because the appellant failed to deposit the same,the appeals were dismissed.
The CESTAT directed the appellant to deposit 50% of the total demand and remanded the matter.
As the Commissioner (Appeals) rejected their appeals in the second round too, the appellant is again before the CESTAT.
The appellant justified the manner of taking proportionate credit by adverting to rule 6(2) of CCR, 2004 and submitted that the impugned order failed to explain as to which type of separate accounts are contemplated under Rule 6(2) which the appellant failed to maintain. They also submitted that denial and recovery of cenvat credit is against the instructions/clarification issued by the Board vide Circular No. 703/19/2003-CX dated 25.3.2003 for the textile industry and since the same is binding on the department, the Revenue cannot be allowed to argue against it. Moreover, the substantive benefit of cenvat credit cannot be denied on technical grounds when the appellant has admittedly forgone the benefit of credit on inputs for use in the manufacture of exempted goods, added the appellant.
The AR supported the order of the lower authorities.
The Bench inter alia extracted the following portion of the Board Circular dated 25.03.2003 -
"(h) Processors who undertake job work and also do processing on their own and obtain dye and chemicals under invoice issued in his name, can take credit of duty paid on such dyes and chemicals to pay duty on his dutiable clearances, even though some of these inputs were used for making goods cleared without payment of duty under the job work scheme.
2. The purpose of the new rules is to allow the textile sector to carry on the work as they have been doing all along, and not to disturb the trade practices . It would be sufficient if the manufacturers or the deemed manufacturers keep account of production & clearance, pay duty accordingly and take credit only on the strength of duty paying documents….”
Thereafter, the CESTAT observed -
"5.1 In my considered opinion, the instructions issued by the above said circular are binding on the Revenue and the Revenue cannot be allowed to argue against it. This fact has been admitted by the Commissioner (Appeals) in the impugned order, but he refused to follow the same without any justified reason. Moreover, the justification given by him for not following the Boards circular is not at all legally valid and tenable in law. The benefit of cenvat credit is sought to be denied for not maintaining separate records of inputs used in the manufacture of dutiable as well as exempted goods. It is a fact that the appellant has availed 20% of the cenvat credit and forgone 80% of it on the basis of pro rata use of inputs used in dutiable and exempted goods. As per the appellants submissions, they have maintained separate records for receipt of consumption and inventory of inputs meant for use in the manufacture of dutiable final products and exempted products. As per the circular stated above, it is sufficient compliance of Rule 6(2) of the Cenvat Credit Rules. Further, in support of their submissions, the appellant relied upon the judgment in the case of Foods, Fats & Fertilisers Ltd. vs. CCE, Guntur reported in - 2009-TIOL-2438-CESTAT-BANG …"
Holding that the appellant's case is fully covered by the cited circular and that it is a settled law that substantive benefit cannot be denied merely on purely technical grounds, the impugned order was set aside and the appeals were allowed with consequential relief.
(See 2015-TIOL-2786-CESTAT-MUM)
