Arvind Ltd. Vs. Commissioner of Central Excise, Ahmadabad-III [(2014) 47 taxmann.com 91 (Ahmadabad – CESTAT)]

Arvind Ltd. (“the Appellant”) was a composite textile mill engaged in the manufacture of 100% cotton fabrics which were cleared for export as well as for home consumption.

The Appellant was simultaneously availing exemption under Notification No.29/2004- CE-Tariff dated July 9, 2004 (“the Notification No.29/2004”) and 30/2004-CE‑Tariff dated July 9, 2004 (“the Notification No.30/2004”).

Notification No. 29/2004 prescribed concessional rate of duty at the rate of 4% ad valorem unconditionally for 100% cotton fabrics and in this case, the Appellant availed Cenvat credit of duty paid on inputs, capital goods and input services used in the manufacture of 100% cotton fabrics, which were exported.

On the other hand, Notification No. 30/2004 prescribed Nil rate of duty on 100 per cent cotton fabrics subject to the condition that no Cenvat credit of duty paid on inputs shall be availed and the Appellant availed exemption under this Notification also in respect of 100%  cotton fabrics cleared for home consumption.

Notification No.29/2004 was amended vide Notification No.58/2008-CE-Tariff dated December 7, 2008 (“the Notification No. 58/2008”) and the rate of duty on the said goods was reduced to Nil unconditionally.

Further, a fresh Notification No. 59/2008-CE (“the Notification No. 59/2008”) was simultaneously issued on December 7, 2008, which prescribed 4% rate of duty on the said  goods  without  imposing any condition. The Department denied credit on ground        that        since        goods     were unconditionally exempted in  terms of Notification  No. 29/2004, which was mandatory and by virtue of sub-section (1A) of Section 5A of the Central  Excise Act, 1944, the Appellant couldn’t opt  for payment of duty @ 4% on export of 100% cotton Fabrics under Notification No. 59/2008 when the goods were unconditionally exempted from payment of duty under Notification No.29/2004 as amended on December 7, 2008.

Accordingly, the Revenue issued Show Cause Notices for recovery of Cenvat credit availed by the Appellant on the grounds that the Appellant were not eligible for the same in view of the provisions of Rule 6(1) and Rule 6(4) of the Cenvat Credit Rules, 2004 (“the Credit Rules”). The Revenue argued that the Appellant was not entitled for Cenvat credit on 100% Cotton Fabrics since it was unconditionally exempt from payment of duty under the Notification No.29/2004 as amended on December 7, 2008. The demand was upheld by the Adjudicating authority and the Commissioner (Appeals). The Appellant filed an appeal before the Hon’ble Tribunal͘ The Hon’ble Tribunal held that when two exemption notifications,one granting absolute  unconditional exemption to excisable goods and other granting unconditional partial exemption to said goods, are operative simultaneously,  it is choice of assessee to opt for that notification which is more beneficial to him and provisions of section 5A(1A) of the Central Excise Act, 1944 would not apply. Further, as per Rule 6(6) of Credit Rules, since said goods (even if considered as exempted) were exported, credit could not be denied.

(Bimal Jain, FCA, FCS, LLB, B.Com (Hons), Mobile: +91 9810604563, Email: bimaljain@hotmail.com)

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