Case Law Details
Sudhan Spinning Mills Pvt. Ltd. Vs Commissioner of GST & Central Excise (CESTAT Chennai)
The appellant, a manufacturer of cotton yarn, availed Cenvat credit on capital goods and input services and utilized such credit for payment of duty on exported goods while also claiming rebate. The appellant used common input services in the manufacture of both dutiable and exempted final products and reversed the proportionate credit attributable to exempted goods in terms of Rule 6(3) of the Cenvat Credit Rules, 2004. While computing the value of exempted goods for the purpose of reversal of Cenvat credit, the appellant excluded the value of export goods cleared under Exemption Notification No. 30/2004-CE dated 09.07.2004, goods cleared under the DEPB scheme, and goods sent for job work, treating them differently from exempted clearances. A show cause notice dated 23.06.2015 was issued alleging incorrect computation of the value of exempted goods. The adjudicating authority confirmed the proposals in the notice through Order-in-Original dated 27.02.2017, and the first appellate authority dismissed the appeal by Order-in-Appeal dated 29.01.2018. The matter was thereafter brought before the Tribunal.
The Tribunal identified the principal issue as whether the appellant was required to reverse credit attributable to common input services used in the manufacture of exempted goods by including the value of cotton yarn exported without payment of duty under the DEPB scheme.
The appellant relied upon an earlier decision of the Chennai Bench in Sri Shanmugavel Mills Ltd. v. CGST & Central Excise, Madurai, which had examined the same issue. That decision, in turn, relied upon the judgment in Sri Velayutham Spinning Mills (P) Ltd. v. Commissioner of GST & Central Excise, Madurai and the Punjab and Haryana High Court decision in Drish Shoes Ltd. The High Court had considered whether an assessee manufacturing exempt goods chargeable to nil duty was eligible to avail Cenvat credit on inputs and input services used in the manufacture of such goods when the goods were exported. The High Court held that an assessee manufacturing goods chargeable to nil duty was entitled to avail Cenvat credit under the exception contained in Rule 6(6) of the Cenvat Credit Rules when such goods were exported.
The Tribunal noted that earlier decisions of both Single Member and Division Benches had consistently held that demands requiring payment or reversal of credit by including the value of export clearances were not sustainable. It observed that judicial discipline required following the judgment of the High Court and earlier Tribunal decisions, especially when the Revenue had not distinguished those decisions on facts or law. Consequently, the Tribunal accepted the appellant’s contention regarding export clearances and held that the issue stood covered in favour of the appellant.
The Tribunal also considered whether the value of cotton yarn cleared for job work for manufacture of grey fabric or doubling of yarn should be included in the value of exempted goods for reversal purposes. It referred to findings in the earlier decision that the appellant had regularly filed ER-1 returns containing details of cotton yarn sent for job work. These details were available with the department through statutory returns and records. The Tribunal noted that the appellant had already included the value of such goods under the category of exempted goods while calculating the quantum of credit reversal. Therefore, including the value of goods sent for job work again would amount to double counting and would not be legally sustainable.
The Tribunal further observed that verification of the relevant details could have been carried out by the lower authorities at the initial stage itself through examination of returns and records. Based on the evidence available and the findings in the earlier precedent, it concluded that job-work turnover could not be included again in the value of exempted goods for determining the amount of credit to be reversed.
FULL TEXT OF THE CESTAT CHENNAI ORDER
The brief undisputed facts of the case as given in the impugned order, are that the Appellant was engaged in the manufacture of Cotton Yarn and are availing Cenvat credit of duty paid on capital goods and input services and utilizing the credit earned for payment of duty on goods exported and claiming rebate of duty. The Appellant was using common input services in the manufacture of both dutiable and exempted final products and were paying/reversing the amount attributable to input services used in or in relation to manufacture of exempted goods in terms of Rule 6(3) of Cenvat Credit Rules, 2004 (hereinafter called as ‘CCR). While computing the value of exempted goods for the purpose of reversal of attributable Cenvat Credit on input services availed on exempted goods, the Appellant have excluded the value of export goods cleared under Exemption Notification No.30/2004-CE dated 09.07.2004, DEPB and cleared to Job work and instead included the value under dutiable clearance. Thus, a Show Cause Notice dated 23.06.2015 was issued to the Appellant. It appears that the Appellant filed its reply to the above SCN which was considered in adjudication and vide Order-in-Original No.05/2017 dated 27.02.2017 the Adjudicating Authority confirmed the proposals as made in SCN. Aggrieved by the above Order-in-Original, First Appeal was filed by Appellant before the First Appellate Authority and the First Appellate Authority vide impugned Order-in-Appeal No. MAD-CEX-000-APP-003-2018 dated 29.01.2018 dismissed the Appeal, leading to the present dispute before this forum.
2. Heard Shri M. Karthikeyan, Id. Advocate for the Appellant and Smt. Anandalakshmi Ganeshram, Id. Assistant Commissioner for the Respondent, perused the documents placed on record including synopsis and decision/order of Chennai Bench relied upon by the Id. Advocate.
3. After hearing both sides, we find that the only issue to be decided is, ‘ whether the Appellant is required to reverse the credit attributable to common input services used in or in relation to the manufacture of exempted goods without taking into consideration the value of cotton yarn cleared for export without payment of duty under DEPB scheme ?’.
4. We have gone through the order of this very Bench in the case of Sri Shanmugavel Mills (Ltd.) Vs CGST & Central Excise, Madurai vide Final Order No.41118/2025 dated 07.10.2025 (in Excise Appeal No.40926 of 2017) relied upon by the Id. Advocate and we find that the above issue has been considered and discussed and after following other precedents, the appeal was allowed in favour of the tax payer. The relevant observations of the Bench are reproduced for convenience as under :
“7.7 In the case of Sri Velayutham Spinning Mills (P) Ltd. Versus Commissioner of GST & Central Excise, Madurai 2024 (8) TMI 1207 – CESTAT CHENNAI in Para 5 of the Decision it has been held as follows: –
“5. On perusal of the impugned order, I find that the issue stands covered by the decision in the case of M/s. Drish Shoes Ltd. (supra), wherein the Hon’ble High Court has analyzed the issue as to whether credit is eligible on the duty paid on inputs and input services used in the manufacture of exempted goods which are exported. The said question of law framed by the Hon’ble High Court is quoted as under:
“(1) Whether an assessee exclusively manufacturing wholly exempted goods (chargeable to NIL tariff rate of duty) is eligible to avail CENVAT credit of duty paid on the said inputs and input services under Rule 6(1) of the CENVAT Credit Rules, 2002/CENVAT Credit Rules, 2004, used in the manufacture of such exempted goods, even if such goods are exported.”
After a detailed discussion, the Hon’ble High Court in paragraph 20 has answered the question as under:
“20. In view of the above discussion, we hold that an assessee, manufacturing goods chargeable to nil duty, is eligible to avail CENVAT credit paid on the inputs under the exception clause to Rule 6(1), as contained in Rule 6(5) of CENVAT Credit Rules, 2002 and Rule 6(6) of CENVAT Credit Rules, 2004, used in the manufacture of such goods, if the goods are exported. Question No. 1 is answered accordingly.
Thus, it was held that even if the exempted goods are exported, credit is eligible. A similar matter was also examined by a Single Member Bench of this Tribunal in the appellant’s sister concern in M/s. Sri Velayuthaswamy Spinning Mills (P) Ltd., (Unit. II) Vs. The Commissioner of GST & CE, Madurai vide Final order No. 40827/2019 dated 06.06.2019 and by the Division Bench in Sivaraj Spinning Mills P. Ltd. Vs. CGST & CE, Madurai vide Final Order No. 41095/2024 dated 19.8.2024. Both the Benches after discussing the issue in detail have held that the demand alleging that the appellant has to pay/ reverse the duty amount, after including the value of export clearances was not proper and have set aside the orders.”
7.8 Judicial discipline requires that we follow the judgment of the Hon’ble High Court and the decisions of this Tribunal for an earlier period, especially when the issues therein have not been distinguished on facts and law by Revenue. Therefore, the first question is answered in favour of the Appellant.
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9.1 The next question before us is whether the value of Cotton yarn cleared for Job work for manufacture of grey fabric or doubling of yarn has to be considered for reversal of Credit.
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9.4 We also find that the Appellant has submitted copies of the ER-1 for the period January 2010 to September 2011 during the hearing held on 07.08.2025 which contain the details of the Cotton yarn sent for Job work As the returns are being filed regularly every month with the Range and the details are also available in the ACES, and the verification should have been done in the initial stage itself by the Lower Adjudicating Authority or by getting a verification report from the Range officer instead of this unwanted exercise at this stage. We are convinced from the submission of the appellant that they have already included the value of the goods so cleared under the category of “exempted goods” for working out the quantum of credit to be reversed. Therefore, to include the value of goods cleared for job work would tantamount to double jeopardy and is not sustainable in law. The ER-1 returns submitted by them also shows the Job work turnover.
9.5 Therefore, in view of the above findings, we find that Job work turnover cannot be included in the value of Exempted goods and this question framed by us is answered in favour of the Appellant.”
5. From the above findings of the Bench, we are convinced that the case of the Appellant stands squarely covered in their favour and as judicial discipline requires us to follow an earlier order especially without no contrary judgements/orders are placed on record and hence, following the same, we set the impugned order and allow the Appeal with consequential benefits, if any, as per law.
(Order pronounced in open court on 29.05.2026)
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