By TIOL News Service

AHMEDABAD, FEB 26, 2016: THE appellant is engaged in the manufacture of Textile Articles.

The appellant had taken CENVAT credit on the inputs received from 100% EOU, during the period 2006-07 to 2009 (i.e. August 2009). According to Revenue, as per amendment to Rule 3(7) of CCR, the appellant is eligible to avail credit on the Additional duty leviable under Section 3(1) of the Customs Tariff Act, which is equal to the duty of excise under Section 3(1)(a) of the Central Excise Act, on or after 07.09.2009 and not earlier.

The adjudicating authority disallowed the CENVAT credit amounting to Rs.12,01,233/- alongwith interest and imposed penalty of equal amount of CENVAT credit for the period 01.4.2006 to 05.09.2009.

The appellant submitted that they are not disputing the demand of CENVAT credit of Rs.4,61,879/-, which is a calculation error and which they have already debited along with interest; therefore penalty cannot be imposed. As for the balance credit, they rely on the following decisions -

(a) Jai Corp Limited vs. CCE& ST, Vapi - 2014-TIOL-2518-CESTAT-AHM

(b) Sri Venkateshwara Precision Components vs. CCE, Chennai - 2010-TIOL-1544-CESTAT-MAD

(c) Metaclad Industries vs. CCE, Mumbai - 2012-TIOL-1577-CESTAT-MUM

(d) CCE& ST, Ludhiana vs. Khanna Paper Mills Limited - 2015-TIOL-2045-CESTAT-DEL

The AR while reiterating the findings of the adjudicating authority submitted that CENVAT Credit of Additional duty has been allowed vide Notification No. 22/2009-CE (NT) dated 07.09.2009 by insertion in Rule 3(7) of the CCR, 2004 and hence the same cannot be held to be operational retrospectively. He cited the decisions in Parle Exports (P) Limited - 2002-TIOL-401-SC-CX & Dharmendra Textile Processors - 2008-TIOL-192-SC-CX-LB in support.

The CESTAT extracted the relevant sub-rule and observed that the issue is no more res-integra in view of the decision in the case of Metaclad Industries (supra) and which decision was approved by the Division Bench in the case of Jai Corp. Ltd. (supra).

In the case of Metaclad Industries (supra), it was concluded thus -

"5.1 The levy on the goods cleared from a 100% EOU to DTA is an excise duty as provided for in Section 3 of the Central Excise Act. For the purposes of arriving at the rate of duty, it has been prescribed in the said section that the rate of excise duty on goods cleared from an EOU shall be the aggregate of the customs duties leviable on like goods imported into India Nevertheless, the levy is an excise levy and it does not in any way get: converted into a customs levy. Once this position in law is clearly understood, the issue becomes simples and clear. The excise duty levied under Section 3 of the Central Excise Act is an eligible duty for CENVAT credit under Rule 3 of the Cenvat Credit Rules, 2004. Similarly in the case of imported goods, the additional duty paid under sub-section (1) of Section 3 of the Customs Tariff Act as well as under sub-section (5) of the said section are duties specified for availment as credit under Rule 3 of the Cenvat Credit Rules.If that be so, irrespective of the nature of the components of duty which is contained in the excise duty paid by an EOU, credit should be available under Rule 3 of the Cenvat Credit Rules, 2004.

5.4 The clarification/amendment made in the said Rule in 2009 is only for the purpose of removal of doubts and not for any other reason. Therefore, the Revenue's contention for restricting the credit has no rationale at all and has to be rejected outright."

Noting that there is no need to look into the other decisions cited by the AR as the issue is squarely covered by the decisions of the Tribunal in Metaclad & Jai Corp. Ltd., the demand of balance amount of CENVAT credit alongwith interest & penalty was held to be not sustainable. As for the amount of Rs.4,61,871/- which the appellant had reversed (as attributable to calculation error) along with interest, imposition of penalty was held to be not justifiable.

The appeal was disposed of.

(See 2016-TIOL-521-CESTAT-AHM)