The Gujarat High Court (Ahmedabad Bench) has upheld the views of the CESTAT that the amount of the counter-veiling duty, which is payable at the time of de-bonding a 100% Export Oriented Unit (EOU), can be paid from the accumulated CENVAT credit by an EOU Unit. Reference was made to the decision in the case of Messrs Dishman Pharmaceuticals and Chemicals vs Union of India.
The Court clarified that insisting on a manufacturer to pay customs duty without utilising CENVAT credit, which is nothing but the duty on various inputs already paid by him, would be a restriction so harsh and out of proportion to the aim sought to be achieved, the same must be held to be wholly arbitrary and unreasonable.
The Division Bench comprising Justice A.S. Supehia and Justice Pranav Trivedi observed that before the 1995-96 Budget, the Central excise/additional duty of customs paid on inputs was allowed as credit for payment of excise duty on the final products, in the manufacture of which such inputs were used. The only condition required for the same was that the credit of duty paid on inputs could have been used for the discharge of duty/liability only in respect of those final products in the manufacture of which such inputs were used.
However, the Bench noted that in the 1995-96 Budget, the MODVAT Scheme was liberalised/simplified and the credit earned on any input was allowed to be utilised for payment of duty on any final product manufactured within the same factory, irrespective of whether such inputs were used in its manufacture or not.
The Bench went on to explain that if, on the inputs, the manufacturer had already paid the taxes on the basis that when the goods are utilised in the manufacture of further products as inputs thereto, then the tax on these goods gets adjusted, which are finished subsequently. Thus, a right accrued to the manufacturer on the date when they paid the tax on the raw materials or the inputs, and that right would continue until the facility available thereto gets worked out or until those goods are exhausted.
The Bench further explained that a manufacturer obtains credit for the excise duty paid on raw material to be used by him in the production of an excisable product immediately he makes the requisite declaration and obtains an acknowledgement thereof. It is entitled to use the credit at any time thereafter when making payment of excise duty on the excisable product.
Therefore, the Bench quashed the direction to pay excise duty in cash, since the “No Due Certificate” has been issued to the petitioners for debonding out of the 100% EOU scheme upon the petitioners having been permitted to pay the excise duty forgone from the legally availed CENVAT credit account.
Briefly, the respondent, a 100% EOU unit engaged in the manufacture of pharmaceutical products, imports the goods duty-free based on the EOU Scheme. Accordingly, they applied for de-bonding and self-assessed their duty liability, with a significant amount paid in cash and the remaining amount through CENVAT Credit. Further, in view of their legal undertaking to accept any future liability/refund, the Department issued a ‘No Objection Certificate’ regarding their De-bonding.
Later, the CERA Audit noted that the respondent had paid the countervailing duty amounting to Rs. 8.30 crores by utilising the CENVAT credit for imported raw material lying in stock instead of payment through customs duty, and had thus contravened Section 668 of the Customs Act, 1962, read with Rule 3(4) of the CENVAT Credit Rules, 2004. Accordingly, an SCN was issued to the respondent for non-payment of customs duty under section 28 of the Customs Act, 1962, along with applicable interest and penalty.
The respondent opposed the SCN, contending that they were a manufacturer of excisable goods under the Central Excise law, and hence they were liable to pay excise duty under Section 3 of the Central Excise Act, 1944, and not customs duty under Section 28 of the Customs Act. The Adjudicating Authority, however, confirmed the demand. When the matter reached the CESTAT, it was held that the amount of the countervailing duty which is payable at the time of debonding 100% EOU, can be paid from the accumulated CENVAT credit by an EOU Unit.
Case Relied On:
Messrs Dishman Pharmaceuticals and Chemicals vs Union of India [Special Civil Application No.14949 of 2015]
Appearances:
Advocate Ankit Shah, for the Appellant/ Revenue
Advocate Hardik P Modh, for the Opponent/ Taxpayer
