The Department can’t force assessee to avail a particular exemption Notification when benefit of other exemption Notification is available
An important judgement of the Hon’ble CESTAT, New Delhi in the case of M/s Winsome Yarns Ltd. Versus Commissioner of Central Excise & Service Tax, Chandigarh-II [2013 (7) TMI 372 - CESTAT NEW DELHI] on following issue:
Whether the Department can force the assessee to avail the benefit of a particular exemption Notification when benefit of other exemption Notification is available?
Facts & Background:
M/s Winsome Yarns Ltd. (“the Appellant”) is manufactures of Yarn. During the period from September, 2009 to May, 2010, the Appellant were availing the exemption Notification No. 29/2004-CE dated July 9, 2004 (“Notification No. 29”) in respect of the yarn manufactured and cleared for export as well Notification No. 30/2004-CE dated July 9, 2004 (“Notification No. 30”) in respect of clearances intended for domestic consumption.
Notification No. 29 prescribes a concessional rate of duty of 4% for yarn without any condition and the Appellant can avail inputs Cenvat Credit under the said Notification. Notification No. 30 provides for full duty exemption to the items specified thereunder subject to condition that no input Cenvat Credit is availed. However, during the period of dispute the Appellant did not avail any inputs Cenvat credit at all but availed only Cenvat Credit on capital goods.
The Department contended that since the Appellant did not avail any Cenvat Credit on inputs in respect of the goods cleared under Notification No. 29 on payment of 4% duty, the Appellant was not eligible for benefit under Notification No. 29. Further, the authorities were of the view that the Appellant should have cleared the goods under Notification No. 30 on payment of NIL duty. Hence, the amount paid towards duty cannot be treated as duty but only a deposit and the goods have to be treated as exempted goods cleared under Notification No. 30. Accordingly, in terms of Rule 6(4) of Cenvat Credit Rules, 2004, no Cenvat Credit would be admissible in respect of capital goods as they have been used exclusively for manufacture of exempted goods.
The Department issued two show cause notices for recovery of alleged wrongly availed Cenvat Credit on capital goods along with interest and penalty which were upheld by the Deputy Commissioner adjudicating these notices.
The Appellant appealed against the order of the Deputy Commissioner before the Commissioner (Appeals) who rejected the appeal and hence the Appellant appealed before the Hon’ble CESTAT.
It was held by the Hon’ble CESTAT that when two exemption Notifications are available to an assessee, he can always opt for the Notification which is most beneficial for him and in this regard the Department cannot force the assessee to avail a particular exemption Notification.
The Hon’ble CESTAT held that the condition of non-availment of inputs Cenvat Credit is for NIL duty under Notification No. 30. But this does not mean that an assessee not availing inputs Cenvat Credit cannot avail the exemption under Notification No. 29, as this is an unconditional Notification. When an assessee does not avail of inputs Cenvat credit, he has option to pay 4% duty under Notification No. 29 and also the option to clear his goods at NIL rate of duty under Notification No. 30.
Since during the period of dispute, the Appellant was clearing the goods by availing full duty exemption as well as on payment of duty, the capital goods cannot be treated as having been used exclusively in the manufacture of exempted goods and Cenvat Credit in respect of the same cannot be denied.
Therefore, on the basis of the above judgment, the Hon’ble Delhi Tribunal rejected the contention of the Department and decided the case in favour of the Appellant.
Point to be noted
It is worthwhile to note that the above issue of “availment of the exemption Notification which is more beneficial to the assessee” has been settled in a number of judgments of the Hon’ble Supreme Court, some of which are mentioned below:
a. H.C.L. Limited Vs Collector of Customs [2001 (130) ELT 405 (SC)]
b. Share Medical Care vs. Union of India [2007 (209) E.L.T. 321 (S.C.)]
c. Unichem Laboratories Ltd. Vs. Collector of Central Excise, Bombay [2002 (145) E.L.T. 502 (S.C.)]
d. CCEx, Baroda Vs. Indian Petro Chemicals [1997 (92) ELT 13 (SC)]
e. CCE Vs. Maruthi Foam (P) Ltd. [1996 (85) ELT 157 (Tri.)] affirmed by the Supreme Court vide 2004 (164) ELT 394 (SC).
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Thanks & Best Regards
FCA, FCS, LLB, B.Com (Hons)
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