Principal Commissioner Of Central Excise vs. Mis B.R. Ceramics (P) LTD

Facts

These two writ petitions concern issues related to Central Excise duty and Cenvat credit. W.P. (C) No. 6706/2016 is filed by Global Ceramics Pvt. Ltd. (GCPL) challenging an order by the Customs and Central Excise Settlement Commission (CCESC) that declined to permit adjustment of duty and Cenvat credit. GCPL imported ceramic tiles between June 2010 and January 2014, paying basic customs duty, countervailing duty (CVD), and education cess. A show cause notice was issued demanding duty of Rs. 3,69,76,139.00. GCPL applied to the CCESC, admitting a duty liability of Rs. 30,79,862, plus interest, and sought adjustment of CVD paid and Cenvat credit for service tax. The CCESC left the adjustment issue to the jurisdictional Commissioner. W.P. (C) No. 9152/2016 is by the Principal Commissioner of Central Excise challenging the CCESC's decision in the case of B.R. Ceramics (P) Ltd. (BRCPL), where Cenvat credit was allowed.

Held

The Court held that the CCESC erred in remanding the issue of adjustment of duty and Cenvat credit to the jurisdictional Commissioner, as the settlement application under Section 32-P of the Central Excise Act, 1944, requires the Commission to settle the matter entirely. The Court found that the CCESC's order in GCPL's case was unsustainable as it was signed by only two members of the three-member bench that heard the application. Regarding the Cenvat credit issue, the Court held that the amendment to Rule 4(1) of the Cenvat Credit Rules, 2004, prescribing a time limit for claiming credit, was prospective and could not be applied retrospectively to deny credit for CVD paid and service tax on inputs for goods imported and deemed manufactured prior to the amendment. The Court relied on the principle that a substantive right cannot be denied due to procedural irregularities and that the right to credit accrues when the tax is paid. Therefore, the CVD paid by BRCPL and the service tax paid by GCPL on input services should be permitted to be adjusted. The Court set aside the impugned order in GCPL's case, allowed the adjustment of CVD and service tax, and reduced the penalty. The Department's challenge to the CCESC's decision in BRCPL's case was dismissed. The ratio is that prospective amendments to Cenvat Credit Rules cannot deny credit for taxes paid prior to the amendment, and settlement commissions must decide all aspects of a settlement application.

Key Issues

1. Whether the Customs and Central Excise Settlement Commission (CCESC) erred in remanding the issue of adjustment of duty and Cenvat credit to the jurisdictional Commissioner, instead of settling it itself, as per Section 32-P of the Central Excise Act, 1944? (Petitioner GCPL's contention: Yes, the CCESC should have settled the entire matter. The CCESC wrongly applied the decision in Osram Surya (P) Ltd. v. Commissioner of Central Excise, Indore, and its case is covered by Eicher Motors Ltd. v. Union of India. The order was signed by only two members of the three-member bench that heard the application). 2. Whether the CCESC's decision in B.R. Ceramics (P) Ltd. (BRCPL) allowing Cenvat credit of CVD was erroneous, considering the declaration of incorrect MRP and the subsequent demand for differential duty? (Revenue's contention: Yes, BRCPL declared the wrong MRP, making it a deemed manufacturer at import. Therefore, Cenvat credit was not permissible. Reliance on CCE, Chennai-I v. Amalgamation Valeo Clutch Pvt. Ltd. and Rathi Ispat Ltd. v. CCE, Meerut). 3. Whether the amendment to Rule 4(1) of the Cenvat Credit Rules, 2004, prescribing a time limit for claiming Cenvat credit, could be applied retrospectively to deny credit for CVD paid and service tax on inputs for goods imported and deemed manufactured prior to the amendment? (Petitioner GCPL's contention: No, the amendment is prospective and cannot affect vested rights. Reliance on Eicher Motors Ltd. v. Union of India, Osram Surya (P) Ltd. v. Commissioner of Central Excise, Jayam & Co. v. Assistant Commissioner, Samtel India Ltd. v. CCE, Jaipur, and Filco Trade Centre Pvt. Ltd. v. Union of India).