Commissioner Of Central Goods And Service Tax, Alwar vs. M/S Orient Syntex (Prop. Apm Industries LTD.)

Facts

The Revenue (appellant) filed a Central Excise Appeal against an order of the CESTAT which allowed the appeal of the Respondent-assessee, M/s Orient Syntex. The Respondent manufactured Polyester Viscose Yarn and installed capital goods in the financial year 2016-17. During that year, they partly cleared final products under exemption Notification No. 30/2004-CE and exported some goods under bond. Some goods were cleared on payment of duty in 2017-18. A Show Cause Notice dated 11.04.2018 raised a demand of Rs. 1,40,72,105/- for alleged violation of Rule 6(4) of the CENVAT Credit Rules, 2004, due to the use of capital goods for manufacturing exempted goods. The Adjudicating Authority initially dropped the demand, holding the assessee entitled to CENVAT credit. However, the Commissioner (Appeals) set aside this order, and subsequently, the CESTAT allowed the assessee's appeal.

Held

The Court held that no substantial question of law arises in the present matter and dismissed the appeal. The Court considered the amended Rule 6(4) of the CENVAT Credit Rules, 2004, which states that no CENVAT credit shall be allowed on capital goods used exclusively in the manufacture of exempted goods for a period of two years from the date of commencement of commercial production or installation. However, the proviso clarifies that if capital goods are used for manufacture of dutiable goods within this two-year period, the credit will be admissible. The Court noted that the Respondent had cleared goods on payment of duty in 2017-18, within the two-year period from the installation of capital goods in 2016-17. Furthermore, Rule 6(6)(v) clarifies that goods exported under bond are not considered exempted goods. The Court found that the capital goods were not used exclusively for exempted goods for the entire two-year period, and were also used for exported goods. Relying on judgments from the Himachal Pradesh, Bombay, and Madras High Courts, the Court concluded that CENVAT credit is available if capital goods are not used exclusively for exempted goods for the entire two-year period and are also used for manufacturing exported goods. The Revenue's reliance on Notification No. 30/2004-CE and a Rajasthan High Court judgment was deemed not persuasive in light of these concurrent holdings.

Key Issues

1. Whether the Appellate Tribunal was correct in allowing CENVAT credit on capital goods procured and installed for the manufacture of exempted goods, considering the assessee's intimation to the department and consistent manufacturing of exempted goods (Question of Law). 2. Whether the Appellate Tribunal correctly interpreted Rule 6(4) of the CENVAT Credit Rules, 2004 (Question of Law). 3. Any other question of law as the Hon'ble High Court may formulate. Petitioner/Appellant (Revenue) argued that the Tribunal erred in allowing CENVAT credit on capital goods used for manufacturing exempted goods, citing the assessee's clear intention and conduct. The Revenue relied on the amended Rule 6(4) and Notification No. 30/2004-CE. Respondent/Assessee argued that CENVAT credit is admissible as they cleared goods on payment of duty during 2017-18 within two years of installing capital goods in 2016-17. They also contended that goods exported under bond are not treated as exempted goods as per Rule 6(6)(v) of the CENVAT Credit Rules, 2004. The assessee relied on various Supreme Court and High Court judgments.