Fully exempted goods - CENVAT Credit on inputs - Supreme Court sets aside Tribunal order - Allows revenue's appeal
IN the very month of starting DDT, more than 11 years ago, I had to break a sensational Tribunal order. In DDT 15, it was reported:
HERE COMES TRIBUNAL ORDER AS A FISCAL BOMB FOR FM; NO NEED TO PAY 10 PER CENT ON EXEMPTED GOODS NOW! TIOL-DDT 15 - 22 12 2004 - Wednesday
Manufacturing dutiable and exempted goods? No need to maintain separate accounts, no need to pay 10% on the exempted goods and even refund can be claimed on the amounts already paid.
The Central Excise department busy with arrears clearance is soon going to be flooded with refund claims.
A recent judgment of the Hon'ble Tribunal has thrown me out of gear for the past few days. After going through it, I was so absorbed that, I spent most of my time discussing only about it with experts in the field. It is a decision, which I honestly feel, is going to create, nothing short of a fiscal fiasco. The decision is rendered following a decision of the Hon'ble Supreme Court, rendered way back in 2000. It is highly surprising and unfortunate that, the said decision of the Apex Court, has not been either relied by the Trade or appealed by the Revenue till date. The decision of the Tribunal is in the case of M/s Andhra Pradesh Paper Mills Ltd v Commissioner of Central Excise, Vizag () and its fulcrum is the decision of the Apex Court in the case of M/s Orissa Extrusions - ().
(for more details, please see DDT 15).
In M/s Andhra Pradesh Paper Mills Ltd case, the Tribunal set aside the demand of 8% under Rule 57CC / 57AD/ Rule 6 of the CENVAT Credit Rules, 2004 by applying Orissa Extrusions case. In Orissa Extrusion case, an exemption Notification had different serial numbers and some of them had a condition that the exemption is admissible only if the assessee does not avail Modvat credit on the inputs. The Supreme Court held that the exemption in respect of the other entries is allowed even if the assessee availed credit on the inputs. This ratio was applied in Andhra Pradesh paper Mills case by the Tribunal and the demand of 8% on the sale price of exempted goods under Rule 57CC/57AD/Rule 6 was set aside.
Against the above order of the Tribunal, the department filed an appeal before the Supreme Court and the Supreme Court has decided the issue recently. While noting that the issue is squarely covered by another judgement of the Supreme Court in case of Amrit Paper , the Court allowed the appeal by revenue.
In Amrit Paper, the Supreme Court held that Orissa Extrusion was not good law. It was held "As rightly submitted by learned counsel for the respondent the provisions of Rule 57C would be rendered nugatory and redundant if the interpretation as suggested by learned counsel for the appellant is accepted. It would mean that primacy has to be given to the Notification over the statutory provisions contained in Rule 57C."
Twist in the Tale : When we carried the story in DDT 15, one of the assessees was so agitated with me that he sent me a very angry mail and cancelled his subscription to TIOL. Even the Departmental officers were angry with me for sensationalising the case; they had no clue as to the grounds on which they could appeal to the Supreme Court. They still did and they won - a few crores as duty and interest.