By TIOL News Service

MUMBAI, DEC 03, 2014: THE applicant is a 100% EOU. For manufacturing their final products, they are procuring certain inputs from the domestic manufacturers free of excise duty. After receiving the said inputs, they are testing and at times such consignments are rejected and returned to the supplier. However, while returning the goods to the supplier, they were paying excise duty by debiting the duty amount in the accumulated CENVAT credit available with them.

Revenue smelt a rat in this uncanny procedure adopted by the applicant. An objection was raised that under Rule 3(4) of the CCR, 2004, CENVAT credit can be utilized for payment of duty in the specified circumstances. In the present case, the inputs being cleared by the applicant are not their final product, when they receive such inputs, no excise duty was paid and, therefore, there was no question of paying duty, particularly by debiting the accumulated CENVAT credit which, in turn, can be taken as credit by the supplier and thus the accumulated CENVAT credit is being shifted from one manufacturer to the other.

The CCE, Pune-I upheld the allegations levelled in the SCN and, therefore, the applicant is before the CESTAT.

It is submitted that under rule 8 of the CER they can pay the duty either in cash or CENVAT credit and there is no requirement that it should be paid in cash only. Reliance is placed on the decision in Dishman Pharmaceuticals & Chemicals Ltd. - 2013-TIOL-610-CESTAT-AHM and it is submitted that since the details had been intimated to the department extended period of limitation cannot be invoked.

The AR opposed the submission made by stating that since no duty was paid on the inputs at the time of original clearance, no CENVAT credit was taken and, therefore, the question of paying duty from the CENVAT credit account during the clearance of the goods does not arise.

The Bench in terse terms observed -

"6. Normally the duty is required to be paid by the manufacturer of the goods. In this case, the applicant is not the manufacturer of the goods in dispute. We also note that when the inputs were originally cleared by the supplier, no excise duty was paid and hence no CENVAT credit was taken by the applicant. Prima facie, to us it appears that there was no need to pay any duty when the goods were being returned to the original supplier. By the above process, accumulated CENVAT credit got shifted from the applicant to the supplier's unit. We have also considered the Tribunal's decision mentioned by the learned counsel. Keeping in view the overall facts, we direct the applicant to deposit 7.5% of the duty demanded, in cash, within a period of eight weeks and report compliance on 19.01.2015. On payment of the said duty, there would be stay on the recovery of the balance amount of duty, interest and penalty."

In passing : 7.5% as pre-deposit…good times ahead for pending stay applications?

(See 2014-TIOL-2427-CESTAT-MUM)