Case Law Details
Zydus Lifesciences Limited Vs C.C.E.-Ahmedabad-II (CESTAT Ahmedabad)
A recent order by the CESTAT (Customs, Excise and Service Tax Appellate Tribunal) Ahmedabad has addressed the issue of whether 100% Export-Oriented Units (EOUs) can use Cenvat credit for paying excise duty when debonding the unit. This decision has significant implications for EOUs and their ability to utilize Cenvat credit for such payments.
1. Background of the Case
The case revolves around the payment of duty by a 100% EOU during the debonding process. The core issue is whether Cenvat credit can be employed for this purpose.
2. Appellant’s Argument
The appellant argued that a show cause notice cannot be issued to a 100% EOU without consultation with the jurisdictional development commissioner. They cited several judgments in support of their position. Additionally, the appellant contended that even if they were asked to pay duty in cash, it would be refundable under Section 142 of the CGST Act, making the exercise revenue-neutral.
3. Revenue’s Stand
The revenue authorities reiterated their findings from the impugned order.
4. Tribunal’s Decision
The Tribunal carefully considered both sides’ arguments and the record. It ruled that consultation with the development commissioner was not required for issuing a show cause notice after debonding, as any duty shortfalls subsequent to debonding could lead to such notices. Regarding the appellant’s assertion of revenue neutrality due to potential refunds under Section 142 of the CGST Act, the Tribunal noted that the mechanism for filing refund claims exists, but the merit of each case would determine whether refunds are granted. The Tribunal also ruled that for imported inputs/raw materials, additional duty of custom should be paid in cash, not through Cenvat credit. However, for duty liability on indigenous raw materials and finished goods, excise duty should be paid from the Cenvat account.
5. Implications and Conclusion
This decision by the CESTAT Ahmedabad clarifies the use of Cenvat credit for excise duty payments during the debonding process of 100% EOUs. It establishes that for imported inputs, additional customs duty must be paid in cash. In contrast, excise duty on indigenous raw materials and finished goods can be paid from the Cenvat account. Additionally, the Tribunal’s ruling emphasizes the availability of refund mechanisms under Section 142 of the CGST Act, providing EOUs with a potential avenue for reclaiming payments.
6. Conclusion: The CESTAT Ahmedabad’s order in the case of Zydus Lifesciences Limited vs. C.C.E.-Ahmedabad-II provides clarity on the utilization of Cenvat credit for excise duty payments during the debonding of 100% EOUs. This decision has implications for EOUs, particularly concerning the distinction between payments for imported inputs and indigenous raw materials or finished goods. It also highlights the refund mechanism available under Section 142 of the CGST Act, potentially offering EOUs a path to recover payments made during the debonding process.
FULL TEXT OF THE CESTAT AHMEDABAD ORDER
The issue involved in the present case is that whether the payment of duty by 100% EOU can be paid from cenvat credit account while debonding the 100% EOU unit.
2.1. Shri Manish Jain, Learned Counsel appearing on behalf of the appellant submits that the show cause notice cannot be issued to 100% EOU without consultation with the jurisdictional development commissioner. He placed reliance on the following judgments:-
- Chem Crown (I) Ltd – 2008 (224) ELT 316 (Tri. Chennai)
- Mantra Broadband Pvt. Ltd – 2011 (272) ELT 243 (Tri. Bang.)
- Stone India Ltd – 2019 (369) ELT 1119 (Tri. Kolkata)
- Geotech Digital Bharat Pvt Ltd – 2015 (319) ELT 142 (Tri. Ahmd)
2.2 He further submits that the demand is revenue neutral in terms of Section 142 of the CGST Act, 2017 for the reason that even if the appellant is asked to pay duty from cash, the duty debited from cenvat credit account will be refundable under Section 142 of the CGST Act, 2017, therefore, entire exercise is revenue neutral. In this regard He placed reliance on the following judgments:-
- Hindalco Industries Ltd – 2018 (3) TMI 538 – Bombay High Court
- Thermax Limited – 2019 (31) GSTL 60 (Guj.)
- Dishman Pharmaceuticals & Chemicals Pvt Ltd – 2016 (332) ELT 242 (Guj.)
- Flexi Caps and Polymers Pvt Ltd – 2022 (58) GSTL 545 (Tri.- Del).
2.3. He further submits that duty payable on the removal of inputs procured by EOU indigenously or from other EOU duty free to DTA is a duty of excise, therefore, the same can be paid from cenvat. He further submits that Rule 17 of Central Excise Rules, 2002 specifically entitles the appellant to utilize cenvat credit for payment of duty on DTA clearances.
3. Shri Anand Kumar, Learned Superintendent (AR) reiterates the finding of the impugned order.
4. I have carefully considered the submission made by both sides and perused the record. I find that in the present case the issue to be decided is that whether the appellant is eligible to utilize the cenvat credit for payment of duty by an EOU at the time of de-bonding of the unit. The learned counsel argued that the show cause notice was issued without consultation of Development Commissioner. In this regard, I find that at the time of de-bonding if there is any short fall of duty payment subsequent to the de-bonding of the unit, the custom/excise department is empowered to issue a show cause notice for which no approval of development commissioner is required for issuance of show cause notice, therefore, this submission of the appellant is not sustainable.
4.1. Regarding the submission of the appellant that since the amount is paid from cenvat credit is otherwise refundable under Section 142 of CGST Act, 2017, I find that there is proper mechanism for filing refund claim and considering the merit of each case the sanctioning authority of GST department shall dispose of the refund, therefore, at this preliminary stage it cannot be decided that since the appellant can claim the refund of cenvat credit, the entire case is revenue neutral. However, the appellant have liberty to approach the GST authority to claim the refund, if any, in accordance with law.
4.2 I find that there is no dispute that the appellant has utilized cenvat credit for payment of Additional duty of custom at the time of de-bonding of 100% EOU. In normal course when any goods are imported the additional duty of custom is paid in cash therefore there is no reason to avoid payment of additional custom duty of raw material as a custom duty in cash.
4.3 I am of the view that the cenvat credit can be utilized for payment of excise duty either on the finished goods or on the indigenous inputs. However, in case of imported inputs the additional duty of custom has to be paid in cash and not by debiting cenvat credit account in terms of Rule 3 of CCR, 2004. In view of this unambiguous position of law, I hold as under: –
(i) In case of imported inputs/raw material, the additional duty of custom shall be paid from cash and not from cenvat credit.
(ii) In case of duty liability on indigenous raw material and finished goods, since the duty is of excise the same shall be paid from cenvat account.
(iii) In case of payment of duty in cash as against the debit in cenvat account already made, the appellant is at liberty to recredit the same in their cenvat account and approach the department for refund in cash in terms of Section 142 of CGST Act and the same shall be disposed of in accordance with law.
4.4. In view of the above observation, the matter needs to be re-considered by the Adjudicating Authority.
5. Accordingly, I set aside the impugned order. Appeal is allowed by way of remand to the Adjudicating Authority.
(Pronounced in the open court on 11.09.2023 )
