This Madras High Court judgment set aside impugned revision orders passed against an excise petitioner. The court held that the revenue authority strayed on irrelevancies and improperly applied a retrospective rule to lapsing Cenvat credit.
The Writ Petitions are allowed and the impugned Orders in Review dated 06.03.2013 are set aside.
This page shows the compact analysis of this judgement. The full analysis — procedural history, issue-by-issue holdings with ratio and obiter, advocates, and paragraph-level evidence for every claim — is being added to the record in batches and will appear here when this judgement has been through it.
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BEFORE THE MADURAI BENCH OF MADRAS HIGH COURT DATED : 01.11.2018 (Reserved on 22.10.2018) CORAM :
THE HONOURABLE MRS.JUSTICE J.NISHA BANU W.P(MD)Nos.14522 and 14523 of 2013 and M.P(MD)Nos.1, 1 and 2 of 2013 M/s.Valli Textile Mills, (A Unit of Loyal Textile Mills Ltd) Rep. by its AGM-Marketing Mr.K.Lakshmana Sankar, N.Venkateswarapuram, N.Subbiahpuram Post, Sattur Talulk, Virudhunagar District. ... Petitioner in both WPs vs.
1)Joint Secretary to the Government of India, Ministry of Finance, Department of Revenue (R.A. Unit), Hudco Vishala Blg., 14, B-Wing, 6th Floor, Bhikaji Cama Place, New Delhi-110 066.
2)The Commissioner of Central Excise(Appeals), Central Revenue Building, Bibikulam, Madurai-625002.
3)Assistant Commissioner of Central Excise, Virudhunagar Division, Virudhunagar.
4)Commissioner of Central Excise, Central Revenue Buildings, Bibikulam, Madurai-2. ... Respondents in both WPs
Prayer in both WPs : Writ Petitions filed under Article 226 of the Constitution of India, for issuance of Writ of Certiorari, calling for the records of the 1st respondent culminating in the order Nos.227 and 228 dated 06.03.2013 issued from F.No.198/75-76/2011RA-Cx and quash the same.
(Both Cases) For Petitioner: Mr.S.Murugappan For R1 : Mr.S.Muthukumar https://hcservices.ecourts.gov.in/hcservices/ Central Government Standing Counsel For R2 : Mr.B.Vijay Karthikeyan
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COMMON ORDER
WP (MD) No 14522 of 2013:-
Prayer : To issue a Writ of Certiorari, calling for the records relating to the orders passed in Order in Revision No.227 dated 06.03.2013 passed in F.No.198/75-76/2011 RA-CX issued by the 1st Respondent and quash the same.
WP (MD) No 14523 of 2013:-
Prayer : To issue a Writ of Certiorari, calling for the records relating to the orders passed in Order in Revision No.228 dated 06.03.2013 passed in F.No.198/75-76/2011 RA-CX issued by the 1st Respondent and quash the same.
2.Heard the counsels for both parties and perused the records including the Show Cause Notices, Orders in Original, Orders in Appeal and the Orders in Review. It is my considered view that the orders had not adequately focussed on the actual issue and strayed on irrelevancies. Therefore, only the discussions relevant to the issue on hand are consciously discussed in this Order.
3.M/s.Valli Textile Mills are the petitioner in both the Writ Petitions. The Writ Petitions are filed against the orders in review passed by the Board under Section 35 EE of the Central Excise Act, 1944. The Orders in review had set aside the Orders in Appeal of the first appellate authority and reinstated the Orders in Original passed by the Original authority.
4.The issue pertains to the demand of the alleged erroneous refund of rebate of taxes on the duty paid export goods in terms of Rule 18 of the Central Excise Rules, 2004. The rebates alleged as erroneous sanction and payment pertain to exports made during the period from 10.06.2006 to 31.07.2007. The petitioner candidly admits that the duty on the said export goods were paid from out of the Cenvat credit earned by the petitioner before 09.07.2004, the date of issue of the exemption Notification No.30/2004, dated 09.07.2004.
5.While processing the rebate claim, the original authority had noticed that the petitioners had opted for full exemption from payment of duty on all their final products in terms of Notification No.30/2004 dated 09.07.2004 during the period 01.06.2006 to 30.06.2007. The Notification bars the petitioner from taking cenvat credit of inputs used in the manufacture of the final products.
6.It was also noticed that the the petitioner had reversed an https://hcservices.ecourts.gov.in/hcservices/ amount of Rs.12,80,848/- on 01.05.2005 towards the cenvat credit on the inputs lying in stock consequent to opting to avail
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exemption under Notification No.30/2004 for all their final products except cotton yarn. Consequently, it was alleged that the excess cenvat credit in the books of accounts of the petitioner statutorily lapses owing to their choosing to avail exemption under Notification No.30/2004 and ought to be purged from their accounts. But the allegation was not backed by the provision under which the excess credit available on the books as on 01.01.2005 lapses. Instead, it was alleged that the same was used for payment of duty on export goods and illegitimately claimed back as rebate. It was the case of the revenue that the approximate amount of Rs.92 lakhs lying in the credit of the petitioner as on 01.07.2007 is the carried over credits from 01.01.2005 that ought to have been purged. The cut of date of 01.07.2007 was thought relevant by the department as Rule 11 (3) of Cenvat Credit Rules, 2004 requiring reversal of credit on lying stock and lapse of credit was introduced on that date.
7.The provision for reversal of credit on the lying stock of inputs and inputs in finished goods and the lapse of excess credit available in the books of accounts on opting to avail exemption under notification issued under Section 5 A was introduced by inserting sub rule 3 of Rule 11 of Cenvat Credit Rules, 2004 vide Notification No.10/2007 CE (NT) dated 01.03.2007. Prior to that amendment, there was no provision requiring the petitioner to reverse the cenvat credit or purge the lapsed credit under the Cenvat Credit Rules, 2004 when opting to avail exemption under a notification issued under Section 5 A. It may be noted that the provisions of Rule 11(2) of Cenvat Credit Rules, 2004 is limited to cases of opting exemption available on the basis of value or quantity of clearances in a financial year. The necessity for Rule 11(3) appeared to have arisen owing to the introduction of Notification No.30/2004 dated 09.07.2004.
8.The exemption under notification No.30/2004 dated 9/7/2004 is optional and not mandatory within the meaning of Section 5 (1A) of the Central Excise Act, 1944. Also, the notification No.10/2007 dated CE- NT dated 01.03.2007 notifying the Cenvat Credit (Second Amendment) Rules, 2007 intently states that it comes into effect from the date of the notification that is on 01.03.2007. Cenvat Credit is a legitimate credit scheme. It normally allows credit of taxes paid on inputs and capital goods. To read it strictly in the context of cascading taxes may defy the legislative intentions. It may be noted that the scheme also provides for allowing deemed credits at rates fixed by the government. The government is also empowered to impose restrictions on the use of legitimate cenvat credit.
9.Therefore, unless it is demonstrated or held that the effect https://hcservices.ecourts.gov.in/hcservices/ of the Notification No.10/2007 CE-NT dated 01.03.2007 is retrospective in character which does not assert so, the availing
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of lying cenvat credit, while choosing to avail exemption, for payment of duty on export goods against claim of rebate of duty under Rule 18 of the Central Excise Rules, 2002, is in accordance with law, until the introduction of Rule 11(3) of Cenvat Credit Rules on 01.03.2007. It may be noted that the sanction and payment of the alleged rebate claims pertain to payment of duty by availing cenvat credit during the period 10.06.2007 to 31.07.2007. When the amendment was made on 01.07.2017, the petitioner was already availing exemption. It is to be noted that the provision apply only in transitional situation when the assessee opts to stop payment of duty and avail exemption. Therefore, the question of reversal does not arise. In effect, the amendment to Cenvat Credit Rules, 2004 by the insertion of Rule 11 (3) will operate only on tax paying assessees who opt to avail exemption on or after 01.07.2007.
10.In view of the above discussions, the impugned Orders in Review 06.03.2013 are liable to be set aside and accordingly, the Writ Petitions are allowed. No costs. Consequently, connected miscellaneous petitions are closed.
Sd/-
Assistant Registrar (CO) // True Copy //
Sub Assistant Registrar(CS-II)
To
BU/PM/SAR-2 :19.11.2018 : 4P/8C
Order made in W.P(MD)Nos.14522 and 14523 of 2013
01.11.2018
2 issues framed by the court
Whether the impugned orders in review concluded in violation of principles of natural justice by straying on irrelevancies.
Whether the revisionary authority were correct in claiming that excess Cenvat credit lapsed upon availing exemption.
3 provisions across 3 enactments
M/s. Valli Textile Mills
Joint Secretary to the Government of India, Ministry of Finance
Commissioner of Central Excise(Appeals)
Assistant Commissioner of Central Excise, Virudhunagar
Commissioner of Central Excise, Madurai
J. Nisha Banu
As recorded by the court registry
Judgements on the same questions, provisions and authorities, from every court
