Case Law Details
Haver Ibau India Pvt. Ltd. Vs C.C.E. & S.T.-Vadodara-II (CESTAT Ahmedabad)
Rule 3(5B) of Cenvat Credit Rules cannot be invoked if No evidence has been led in by the Revenue to prove that the goods have not been used and rule 14 cannot be invoked to demand reversal of cenvat credit as explanation was added only with effect from 01.03.2013 and the period in question is prior to 2012.
Introduction
In the recent case of Haver Ibau India Pvt. Ltd. vs. C.C.E. & S.T.-Vadodara-II, the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) Ahmedabad issued a significant judgment regarding the application of Rule 3(5B) of the Cenvat Credit Rules. The case revolved around the demand for the reversal of cenvat credit due to certain amounts written off by the vendor. The appellant, Haver Ibau India Pvt. Ltd., had imported capital goods and raw materials and availed credit for the CVD (Countervailing Duty) paid on these imports. However, the foreign principal waived the price payable for these goods, prompting the revenue authorities to issue a show-cause notice for the reversal of credit under Rule 3(5B). CESTAT also explained why Rule 14 cannot be invoked for demanding the reversal of cenvat credit due to the explanation added with effect from 01.03.2013.
Analysis of Rule 3(5B) of the Cenvat Credit Rules
The crux of the case hinged on the interpretation of Rule 3(5B) of the Cenvat Credit Rules. This rule states that if the value of any input or capital goods, on which CENVAT credit has been claimed, is written off fully or partially or if a provision for a write-off has been made in the books of accounts, the manufacturer or service provider is required to pay an amount equivalent to the CENVAT credit taken. However, the proviso to the rule clearly stipulates that if the said input or capital goods are subsequently used in the manufacture of final products or the provision of output services, the manufacturer or service provider can take credit equivalent to the CENVAT credit paid earlier.
The primary contention put forth by Haver Ibau India Pvt. Ltd. was that no goods were written off, and the imported materials on which the credit was taken had been used in the manufacture of final products. As per the appellant, Rule 3(5B) could not be invoked because the essential condition of non-use of inputs or capital goods had not been met. They highlighted the fact that there was only a payment waiver between the appellant and its principal, not a write-off.
Additionally, the appellant argued that no recovery under Rule 3(5B) could be made for the disputed period, which was prior to March 2013. The power to recover amounts under Rule 3(5B) by invoking Rule 14 was granted only by an amendment made in March 2013. Before that amendment, there was no legal provision for recovery of cenvat credit and interest under Rule 3(5B).
The interpretation offered by the appellant was supported by the CESTAT’s decision. The Tribunal noted that Rule 3(5B) could only be applied when inputs or capital goods on which credit had been claimed were written off and not used in the manufacture of final products. The absence of evidence from the revenue to prove non-use was a critical factor in favor of the appellant. Furthermore, the Tribunal considered the effect of Rule 14 and the fact that the recovery provisions for amounts recoverable under Rule 3(5B) were introduced only from March 2013.
Analysis of Rule 14 and Its Applicability
In the case of Haver Ibau India Pvt. Ltd., one of the crucial aspects of the judgment was the applicability of Rule 14 concerning the recovery of cenvat credit. The appellant, Haver Ibau India Pvt. Ltd., successfully argued that Rule 14 could not be invoked to demand the reversal of cenvat credit due to a key factor: the timing of the explanation added to the rule.
Rule 14 comes into play when there is a need for the recovery of amounts recoverable under other rules, including Rule 3(5B) in this case. Rule 14 prescribes the method for recovering cenvat credit that has been wrongly taken. However, a critical aspect in this case was the introduction of an explanation to Rule 14, which impacted its applicability.
The explanation in question was added with effect from 01.03.2013. The period under dispute in the Haver Ibau India Pvt. Ltd. case was prior to 2012. This timeline discrepancy played a pivotal role in the judgment. Since the amendment that introduced the explanation to Rule 14 came into effect after the relevant period, the Tribunal held that Rule 14 could not be applied to demand the reversal of cenvat credit during that earlier timeframe.
In essence, the absence of an applicable legal provision for recovery of cenvat credit under Rule 14 for the period in question underscored the fact that the revenue authorities could not rely on this rule to enforce the reversal of cenvat credit. This decision aligns with the principle that legal provisions should be interpreted in a manner consistent with the period they pertain to. As a result, the CESTAT upheld the appellant’s argument and ruled in their favor.
Conclusion
The judgment by CESTAT Ahmedabad in the case of Haver Ibau India Pvt. Ltd. clarifies the application of Rule 3(5B) of the Cenvat Credit Rules. It underscores that for Rule 3(5B) to be invoked, inputs or capital goods must be written off and not used in the manufacture of final products. The absence of written-off goods and the waiver of payment between the appellant and its principal played a crucial role in the decision. This judgment also highlights the significance of timeline considerations, as the recovery provisions introduced under Rule 14 were not applicable to the period in question. As a result, Haver Ibau India Pvt. Ltd. succeeded in their appeal, emphasizing the importance of a clear understanding of tax laws and their applications in complex situations.
The matter was argued by our Ld. Counsel Bharat Raichandani along with Anshul Jain
FULL TEXT OF THE JUDGMENT/ORDER OF CESTAT AHMEDABAD
This appeal has been filed by Haver Ibau India Private Limited against demand of reversal of cenvat credit on certain amounts written off by the vendor.
2. Learned counsel argued that the appellant had purchased certain goods from its principal M/s Haver Boecker OHG, amounting to Rs. 59,489,772/-. The said amount was written off by the principal. He pointed out that the appellant had imported these goods from their principal and they had used the same for manufacture of finished products. He pointed out that Revenue has invoked Rule 3(5B) of Cenvat Credit Rules, 2004 to demand reversal of cenvat credit. Rule 3(5B) reads as under:
“[3(5B) If the value of any,
(i) input, or
(ii) capital goods before being put to use,
[on which CENVAT credit has been taken is written off fully or partially or where any provision to write off fully or partially has been made in the books of account then] the manufacturer or service provider, as the case may be, shall pay an amount equivalent to the CENVAT credit taken in respect of the said input or capital goods :
PROVIDED that if the said input or capital goods is subsequently used in the manufacture of final products or the provision of [output] services, the manufacturer or output service provider, as the case may be, shall be entitled to take the credit of the amount equivalent to the CENVAT credit paid earlier subject to the other provisions of these rules.]”
Learned counsel for the appellant pointed out that it is not a case that the imported goods on which credit has been taken have been written off. Learned counsel made a strong argument that the said materials on which credit was taken have been used in the manufacture of final products and therefore, their goods do not get hit by mischief of Rule 3(5B) of Cenvat Credit Rules, 2004. He pointed out that the said rule requires that the input or the capital goods should be written off partially or fully and provision for writing off fully or partially should be made in books of accounts. He pointed out that in the instant case, no goods have been written off. It is only an arrangement between the appellant and its principal whereby the payment required to be made by appellant has been waived by the parent company. He also pointed out to the Proviso to the said rules also clearly prescribes that whether the goods are used in the manufacture of final product, the credit cannot be denied.
3. He further pointed out that no recovery under Rule 3(5B) can be made for the disputed period which is prior to March 2012. He argued that the power to recover the amounts recoverable under Rule 5, 5A, and 5B by invoking Rule 14, was granted only by amendment made vide Notification 3/2013-CE(NT) dated 01.03.2013 by adding the following explanation to Rule 3.
“Explanation. – If the manufacturer of goods or the provider of output service fails to pay the amount payable under sub-rules (5), (5A), and (5B), it shall be recovered, in the manner as provided in rule 14, for recovery of CENVAT credit wrongly taken.”
Learned counsel pointed out that at the material time there was no recovery provision for reversal required under Rule 3(5B) of Cenvat Credit Rules, 2004.
4. Learned counsel also relied on the Circular No. 990/14/2014-CX(NT) dated 19.11.2014 which prescribes as under:
“ii. According to Rule 3(5B) of CCR, 2004, if the value of any input or capital goods before being put to use on which Cenvat Credit has been taken, is written off or such provisions made in Books of Account, the manufacturer or service provider is required to pay an amount equal to credit so taken. However, when the inputs or capital goods are subsequently used, the amount so paid can be re-credited in the account.”
5. Learned Counsel also relied on the decision of Tribunal in the following cases:
- 2023 TIOL 875 CESTAT AHD – MS GKN Driveline India Ltd.
- 2019 TIOL 3279 CESTAT DEL – Udaipur Cement Works Ltd.
- 2019 TIOL 1356 CESTAT DEL- Ericsson India Pvt Ltd.
6. Learned Authorized Representative relies on the impugned order.
7. We have considered the rival submissions. We find that Rule 3(5B) reads as under:
“[3(5B) If the value of any,
(i) input, or
(ii) capital goods before being put to use,
[on which CENVAT credit has been taken is written off fully or partially or where any provision to write off fully or partially has been made in the books of account then] the manufacturer or service provider, as the case may be, shall pay an amount equivalent to the CENVAT credit taken in respect of the said input or capital goods :
PROVIDED that if the said input or capital goods is subsequently used in the manufacture of final products or the provision of [output] services, the manufacturer or output service provider, as the case may be, shall be entitled to take the credit of the amount equivalent to the CENVAT credit paid earlier subject to the other provisions of these rules.]”
A plain reading of the above rule clearly indicate that credit is required to be reversed only in the circumstances when inputs or capital goods on which credit has been taken is written off fully or partially. In the instant case, the appellant have vehemently asserted that the goods have been used in the manufacture of final products. This assertion was also made before the lower authorities as well as in the present appeal. No evidence has been produced by Revenue to show that the said goods were not used in the manufacture of final product. In this background the Rule 3(5B) itself cannot be invoked for recovery of cenvat credit. The primary condition for invoking Rule 3(5B) is non use of inputs/ capital goods on which credit has been taken. The instant case is only of non-payment / waiver of the price which the appellant were require to pay to the vendor.
8. This interpretation is also supported by the proviso to the said rule which clearly indicates that once the goods are used for manufacture of final products or for provision of taxable services, credit can be allowed.
9. Moreover, it is seen that Tribunal in the case of GKN Driveline India Ltd. in para 14 as observed as follows:
“14. It is pertinent to note that the identical issue was considered by the Division Bench of the Tribunal in the case of Ericsson India Pvt. Ltd. cited (supra) wherein the Tribunal has held as under
“7. Having considered the rival contentions, we find that the issue is one of interpretation. We further find that for reversal of cenvat credit on partial writing down of value of inputs, the provision was introduced only first time by amendment of Rule 3(5B) of Cenvat Credit Rules, with effect from 01.03.2011. Further, there was no provision prior to 01 March 2013 for recovery of cenvat credit and interest thereon under Rule 3(5B) etc. which was made applicable with effect from 01.3.2013 only, by virtue of Notification No. 3 of 2013-CE(NT) dated 01.03.2013. The notification provides that if the manufacturer of goods or the provider of output service fails to pay the amount payable under sub-rule (5), (5A) and (5B), it shall be recovered, in the manner as provided in Rule 14, for recovery of CENVAT credit wrongly taken.
8. Learned Counsel have also pressed the ground that as they were not required to reverse the cenvat credit on partial writing down the value of inputs, prior to 01.03.2011, accordingly, we hold that as there was no such legal requirement. The learned Counsel also prays that they are entitled to refund, already reversed credit on account of partial writing down of value, prior to 01.03.2013.
9. In this view of the matter, we hold that the issue has arisen due to change of opinion on the part of the Revenue, but there is no suppression of facts on the part of the appellants. Further, we find that no amount was due to be reversed under rule 3(58) on the date of issue of show cause notice. Accordingly, we hold that larger period for limitation cannot be invoked and no show cause notice was required to be issued. Accordingly, we hold that impugned order is not sustainable, and is set aside. Appeal is allowed with consequential relief. In this view of the matter, we set aside the demand, penalty and interest.”
Though the Revenue has filed appeal against the decision before the Hon’ble High Court of Rajasthan, but no stay has been granted by the Hon’ble High Court.
10. It is apparent that the recovery provisions for amount recoverable under Rule 3(5B) was introduced only w.e.f. 01.03.2013. The present dispute is for the period prior to the said date. In these circumstances, notification of Rule 14 to recover these amounts is doubtful.
11. In these circumstances, we do not find any merit in the impugned order. The same is set aside and appeal is allowed.
(Pronounced in the open court on 16.10.2023)
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