M/S Mohit Industries Ltd vs Union Of India
2023 Latest Caselaw 1736 Guj

    C/SCA/9678/2021                               CAV JUDGMENT DATED: 21/02/2023




              IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

                R/SPECIAL CIVIL APPLICATION NO. 9678 of 2021


FOR APPROVAL AND SIGNATURE:


HONOURABLE THE CHIEF JUSTICE MS. JUSTICE SONIA GOKANI

and
HONOURABLE MS. JUSTICE NISHA M. THAKORE

==========================================================

1 Whether Reporters of Local Papers may be allowed to see the judgment ? YES

2 To be referred to the Reporter or not ?

YES 3 Whether their Lordships wish to see the fair copy of the judgment ? NO

4 Whether this case involves a substantial question of law as to the interpretation of the Constitution NO of India or any order made thereunder ?

========================================================== M/S MOHIT INDUSTRIES LTD.

Versus UNION OF INDIA ========================================================== Appearance:

MR KARANKUMAR J SUKAWALA(10263) for the Petitioner(s) No. 1,2 MR MUKUND KUMAR CHOUHAN(10259) for the Petitioner(s) No. 1,2 MR NIKUNT K RAVAL(5558) for the Respondent(s) No. 3,4 NOTICE SERVED BY DS for the Respondent(s) No. 1,2 ==========================================================

CORAM:HONOURABLE THE CHIEF JUSTICE MS. JUSTICE SONIA GOKANI and HONOURABLE MS. JUSTICE NISHA M. THAKORE

Date : 21/02/2023

CAV JUDGMENT

C/SCA/9678/2021 CAV JUDGMENT DATED: 21/02/2023

(PER : HONOURABLE THE CHIEF JUSTICE MS. JUSTICE SONIA GOKANI)

1. This is a petition preferred by the petitioner who has two

factories one at Kim, District Surat and second at Masat,

Silvassa. The petitioner is engaged in the business of

manufacture of polyester yarn, falling under chapter 5402 of

Central Excise Tariff Act, 1985. Both the factories of

petitioner had separate Central Excise Registration number.

The factories of the petitioner were running prior to the date

09.07.2004. The petitioner also availed Central Value Added

Tax (CENVAT) Credit of duty paid on input and capital goods

on one hand and on receipt at factory, and on the other hand,

paying Central Excise duty on Finished Goods on clearance

from factory. On 09.07.2004, petitioner had accumulated

amount of CENVAT credit in his statutory record for both the

factories separately.

1.1. The Central Government has issued two notifications for

Textile Industry for levy of duty. First one was Number

29/2004-CE dated 09.07.2004, manufacture of polyester yarn

would need to pay duty on finished goods and he would be

also eligible to avail CENVAT credit of duty paid on inputs. In

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second Notification No. 30/2004-CE dated 09.07.2004,

manufacturer of polyester yarn will be exempt from payment

of duty on finished goods with the condition that no CENVAT

credit of duty paid on input would be availed.

1.2. As averred in the petition, the petitioner exported

finished goods from both the factories, on the payment of duty

and filed the rebate claim with Respondent No. 3 and

Respondent No. 4. This was rejected on various grounds. The

legal grounds, based on which rebate claims were rejected,

were decided in his favour in separate proceedings by the

Commissioner (Appeals) and Tribunal. According to the

petitioner, during personal hearing, the copy of order was

submitted to the Principal Commissioner (RA), Additional

Secretary to the Government of India. However, after the

change of adjudicating authority, he did not provide

opportunity of fresh hearing and did not follow the principle of

natural justice. The Principal Commissioner (RA) also rejected

the appeals without following the principle of judicial

discipline and hence, the present petition is preferred

questioning the breach of principle of natural justice.

C/SCA/9678/2021 CAV JUDGMENT DATED: 21/02/2023

2. The chronological events if are considered, the two

notifications, as mentioned hereinabove, 30/2004 dated

09.07.2004 and 29/2004 of the self same date were issued.

One was for the conditional exemption of duty provided to the

manufacturer of textile and textile article and another for

manufacturing of textile and textile item for payment of duty

on finished goods and availment of CENVAT Credit of duty

paid on inputs.

2.1. The Board issued the circular on 28.07.2004 and

clarified that notifications no. 29/2004 and 30/2004 both can

be availed simultaneously provided the books of accounts are

kept separately.

2.2. A show cause notice was issued dated 22.04.2009 for

utilization of the sum of Rs. 99,929/- out of the lapsed credit.

According to the petitioner, on 31.03.2010, the Finished

Goods were exported from Masat, Silvassa factory on payment

of duty under Notification 29/2004-CE on dated 09.07.2004

and filed rebate claim with department.

2.3. On 08.04.2011, a show cause notice was issued by the

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Joint Assistant Commissioner to reject rebate claim for the

Masat, Silvassa factory. On 27.02.2012, the Joint Assistant

Commissioner issued the order-in-original and rejected rebate

claim for Masat, Silvassa, factory. On 08.11.2012, the

Commissioner (Appeals) rejected the appeal against order of

Joint Assistant Commissioner for rebate claim of Masat,

Silvassa factory.

2.4. The petitioner shifted the factory from Masat, Silvassa to

Kim, Surat along with plant & machinery and stock and also

transferred balance amount of CENVAT Credit Rs.

1,58,73,511/-. Therefore a show cause notice was issued on

01.11.2013 by the Assistant Commissioner since the CENVAT

Credit lying in the record of Masat, Silvassa factory was

transferred to the CENVAT Credit record of Kim, Surat

factory.

2.5. After adjudication, Commissioner confirmed the demand

and passed the order-in-original on 06.03.2014, in between,

the show cause notice on 21.10.2013 came to be issued for

demanding Rs. 43,41,820/- which was used from accumulated

CENVAT Credit. The Commissioner (Appeals), Surat rejected

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the Order-in-Appeal by order dated 23.10.2013 for utilization

of Rs. 99,929/- out of the lapsed Credit. On 30.10.2013, the

Commissioner (Appeals), Vapi passed order and held that

petitioner had maintained separate records.

2.6. On 01.11.2013, the show cause notice was issued by

Commissioner for transfer of CENVAT Credit Rs 1,58,73,511/-

from Masat, Silvassa factory to Kim, Surat factory. On

18.11.2013, the show cause notice was issued for rejection of

rebate claim for Kim, Surat factory. A show cause notice came

to be issued on 23.01.2014 by Joint Assistant Commissioner

for rejection of the rebate claim of goods exported from Kim,

Surat factory.

2.7. On 06.03.2014, the order-in-original was passed by

Commissioner and confirmed the demand of Rs 1,58,73,511/-.

On 07.05.2014, the order came to be passed by the Joint

Assistant Commissioner, Surat rejecting the rebate claim of

export made from Kim, Surat factory. This was challenged

before the Joint Commissioner and on 31.12.2014 and it

confirmed the demand of Rs.43,41,820/-.

C/SCA/9678/2021 CAV JUDGMENT DATED: 21/02/2023

2.8. When challenged before the Tribunal, it allowed the

appeal and held that unutilized credit can be utilized for

subsequent clearance and the petitioner had correctly utilized

the amount of Rs.99,929/-. The Commissioner (Appeals), on

03.06.2015 passed the order in appeal and rejected both the

appeals filed against the denial of rebate claim.

2.9. On 15.01.2018, the Commissioner (Appeals), Surat

confirmed the demand of Rs.43,41,820/-. On 12.07.2018, the

Tribunal passed the order and confirmed the transfer of credit

from Masat, Silvassa factory to Kim, Surat Factory to be

legally correct and remanded the matter back for verification

of the amount.

2.10. On 19.09.2019, the Principal Commissioner (RA),

Mumbai had called for personal hearing and the petitioner

submitted all the orders passed by the higher authorities.

However, no order was passed by the Principal Commissioner

after the passing of one year of personal hearing. The

Commissioner, Surat on 29.09.2020 passed the order and held

that transfer of CENVAT credit amount from Masat, Silvassa

to Kim, Surat is legally correct.

C/SCA/9678/2021 CAV JUDGMENT DATED: 21/02/2023

2.11. On 04.11.2020, the petitioner requested Principal

Commissioner (RA) to pass the order because personal

hearing was completed long ago. On 03.12.2020 a personal

hearing letter was supplied to the petitioner by the Principal

Commissioner (RA) showing that the personal hearing was

provided to the Commissioner only and not to the petitioner.

2.12. On 21.01.2021, the Principal Commissioner (RA) passed

ex-parte order and rejected the appeals. The objections were

raised by the petitioner by letter dated 31.03.2021 for ex-

parte order when authority changed after conducting personal

hearing. The petitioner never waived his right before the new

authority. The Principal Commissioner (RA) wrote letter dated

08.04.2021 to the petitioner and stated that personal hearing

was provided and copy of personal hearing also was supplied,

however, it was petitioner who had vide letter dated

09.09.2019 and again vide letter dated 04.11.2020 and

10.11.2020 has requested to pass order. Therefore, has

waived for personal hearing.

2.13. The petitioner, therefore, has approached this Court

C/SCA/9678/2021 CAV JUDGMENT DATED: 21/02/2023

aggrieved by the fact that denial of rebate claim is double

demanded and particularly when no show cause notice is

issued for demand of CENVAT credit wrongly carried forward.

It is his emphasis that show cause notice has been issued for

accumulated CENVAT credit and therefore, if the rebate claim

is denied on the utilization of that amount, after denial of

rebate claim, again the amount of credit needs to be allowed.

It is a case of double demand by not sanctioning the rebate

claim and not allowing to restore the CENVAT credit amount

which has been utilized.

3. The prayers sought are as follow:-

"A. Your Lordship may be pleased to admit this Petition.

B. Your lordship may be pleased to allow this petition.

C. Your lordship may be pleased to issue writ of Mandamus or any other appropriate writ, and to quash the impugned order No. 29-30-31/2021-CX (WZ)/ASRA/Mumbai dated 21/01/2021 passed by the Respondent No. 2 and enclosed herewith and marked as Annexure- 'Z'.

D. Your Lordship consequently may direct the Respondent no. 3 and Respondent no. 4 to sanction of rebate claim.

E. Your Lordship, to direct the Respondent no. 3 and Respondent no. 4 to grant interest for the delayed period of sanction of rebate claim.

C/SCA/9678/2021 CAV JUDGMENT DATED: 21/02/2023

F. Your lordship may be pleased to grant such other further reliefs that may be deemed fit and proper in the interest of justice in favour of our petition."

4. Notice came to be issued by this Court [Coram:Hon'ble

the Chief Justice Mr.Vikram Nath (as His Lordship then was)

& Mr.Biren Vaishnav, J] on 08.07.2021.

5. The affidavit-in-reply is filed by the Assistant

Commissioner of CGST and Central Excise on behalf of the

respondent No.3 by denying all the averments and the

contentions raised.

5.1. It is not disputed that the Notification No.30/2004-CE

dated 09.07.2004 has been issued under Section 5A of the

Central Excise Act and it exempts the excisable goods

manufactured by the petitioner i.e. textured yarn from whole

of the duty of excise leviable thereon. This would mean that

the exemption will apply only when the total balance of

CENVAT credit is reversed and no credit of input or capital

goods is taken after 09.07.2004. Moreover, as per the

Notification No.29/2004 the manufacturer can avail CENVAT

credit on inputs or capital goods and pay the duty on

C/SCA/9678/2021 CAV JUDGMENT DATED: 21/02/2023

clearance of finished goods as specified in the table against

the chapter heading and nowhere it is provided that the

balance credit is required to be reversed, but, it does state

that the CENVAT credit can be availed on inputs used for

production of dutiable finished goods and credit can be

utilized to pay the duty.

5.2. It is further contended that secondly Rule 11(3) of

CENVAT Credit Rules, 2004 provides that the manufacturer

opts for exemption from whole of the duty of excise leviable

on the final product manufactured and produced by him under

a notification issued under Section 5A or the said final product

has been exempted absolutely under Section 5A and after

deducting the said amount from balance of CENVAT credit, if

any lying in his credit, the balance shall lapse and shall not be

allowed to be utilized for payment of duty.

5.3. The goods were conditionally exempted of the petitioner

under Notification No.30/2004, which would apply only to the

cases of absolute exemption, according to the respondent, is

not correct. Sub-rules (1) and (2) of Rule 11(3) shall need to

be read together and the provision of sub-rule (2) shall also

apply to sub-rule (1) where manufacturer opts for exemption

C/SCA/9678/2021 CAV JUDGMENT DATED: 21/02/2023

from whole of the duty of excise leviable on the said final

product manufactured or produced by him under a

notification issued under Section 5A.

5.4. According to the respondent, the petitioner had opted

for exemption from whole of the duty under Notification

No.30/2004-CE issued under Section 5A, hence, the provisions

of Rule 11(3)(2) are applicable to the present case. It is thus

contended that both the Notifications No.29/2004 and

30/2004 are independent notifications and there is no

restriction on availing both simultaneously. However, the

manufacturer should maintain separate books of accounts for

goods availing Notification No.29/2004 and for the goods

availing Notification No.30/2004. There is nothing on the

record which proves that the petitioner maintained the

separate books of accounts for goods availing both the said

notifications.

5.5. It is the say of the respondent that petitioner's

contention that simultaneous availment of Notifications

No.29/2004 and 30/2004 both dated 09.07.2004 is permissible

as per Circular 795/28/2004-CE dated 28.07.2004. It is further

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the say of the respondent that any assessee when chooses for

such simultaneous availment of these notifications, the credit

in their balance after reversing the amount of CENVAT credit

pertaining to input lying in stocks or in process or contained

the final produce shall not lapse, is not a correct contention.

5.6. Rule 11(3) of the CENVAT credit Rules is emphasized

upon to urge that it prescribed for lapsing of entire balance of

CENVAT credit once the assessee opts for full exemption

under the notification issued under Section 5A of the Central

Excise Act. This Rule applies irrespective of whether the

assessee simultaneously avails the benefits of some other

notification or not. Rule 11(3) of the CENVAT Credit Rules,

2004 (hereinafter referred to as 'CCR') clearly describes that

all the previous balance accrued legally will lapse even when

the petitioner uses both notifications simultaneously.

5.7. According to the respondent, the petitioner opted and

availed for the exemption under Notification No.30/2004-CE

and after deducting duty involved in stocks CENVAT credit of

Rs.1,33,58,225/- was lying in the balance in the record. Rule

11 (3) of the CCR inserted on 01.03.2007 vide Notification

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No.10/2007 dated 01.03.2007 and since the petitioner availed

the exemption under Notification No.30/2004 and CENVAT

credit was lying in balance of the record as on 01.03.2007, the

said balance of CENVAT credit automatically would lapse and

cannot be allowed for utilization or introduction of provisons

of Rule 11(3) of CCR.

5.8. It is contended further that the petitioner had paid the

Central Excise Duty of Rs.3,14,598/- on the goods exported

from the unutilized credit accumulated while opting for NIL

rate of duty under Notification No.30/2004 dated 09.07.2004

instead of paying Central Excise Duty under Notification

No.29/2004 from fresh credit. It appears that the petitioner

had utilized the credit for payment of duty on goods exported,

which had already lapsed after opting of exemption under

notification. It was held that payment of duty made through

lapsed credit cannot be treated as payment of duty and hence,

rebate of duty was not admissible.

5.9. The petitioner was served the show cause notice by the

Assistant Commissioner, Central Excise and Customs Division-

II, Vapi (at Silvassa) on 08.04.2011 which was further upheld

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by the Order-in-Original dated 27.02.2012 passed by the

Assistant Commissioner, Central Excise and Customs,

Division-II, Silvassa, Order-in-Appeal dated 08.11.2012 by the

Commissioner (Appeals), Central Excise, Customs and S.Tax,

Vapi and order dated 13.01.2021 passed by the Principal

Commissioner (RA) and Ex-officio Additional Secretary to the

Government of India.

5.10. It is denied that the Principal Commissioner (RA) passed

an ex-parte order and violated the principle of natural justice.

According to the respondent, communication issued by the

Assistant Commissioner (RA), Mumbai, an opportunity of

personal hearing was granted to the petitioner in respect of

the Revision Application. In response, the Director of Mohit

Industries Ltd. - petitioner Vide letter dated 09.09.2019

informed the Principal Commissioner (RA), Mumbai that they

did not want any further person hearing and requested to

pass the order considering the documents available on record,

and hence, the Principal Commissioner (RA) passed the order

on 21.01.2021 after considering all aspects. Therefore, the

order impugned and findings of the Revisional Authority are

legal and do not require any interference.

C/SCA/9678/2021 CAV JUDGMENT DATED: 21/02/2023

5.11. All in all, it is urged that after insertion of sub-rule (3) of

Rule 11 of the CENVAT credit Rules, 2004 w.e.f. 01.03.2007

as the petitioner availed total exemption on its final product

during the particular period and as the duty paid from such

lapsed CENVAT credit on the exported goods at a much later

date since is not the payment of duty, therefore, the rebate

claims have not been admitted. The rebate claim had been

filed by the petitioner in pursuance of Rule 18 of Central

Excise Rules, 2002 (hereinafter referred to as 'CER') which

stipulates that the rebate shall be subject to such condition,

limitation and fulfillment of such procedure as may be

specified in the notification. The Central Government for

operational limitation of Rule 18 issued notification

No.19/2004 as amended wherein conditions, limitations and

procedures are prescribed. The first and foremost condition

for rebate of duty on export of goods is that the excisable

goods shall be exported after payment of duty and petitioner

had not paid the duty for the purpose of exportation of the

goods.

5.12. The utilization of lapsed credit is a double loss to the

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exchequer to the extent that the unit had not paid the Central

Excise Duty on their finished goods by opting for the benefits

under the Notification No.30/2004, but carried forward duty

paid on inputs which, in turn, is consumed for manufacturing

exempted goods in terms of Notification No.30/2004-CE. The

intention of legislature for providing the credit on input was

that the said credit would be utilized for payment of Central

Excise Duty on finished goods in order to reduce the

cascading effect of duty. Thus, the double benefit to the unit

i.e. nonpayment of Central Excise Duty on finished goods and

encashment of accumulated credit of input used in the

manufacture of exempted goods through the rebate of the

duty is not permissible in terms of scheme of CENVAT credit

particularly under provision of Rule 11 (3)(2) of CCR.

5.13. It is the say of the respondent that rebate under Rule 18

can only be granted of Excise Duty paid on the goods

exported. It has relied on the judgment of Bombay High Court

in case of Union of India vs. Rainbow Silks [2011 (274) ELT

510 (Bombay)] to urge further that the CENVAT credit

balance available in the account was to lapse at the time of

opting for complete exemption on their final product. The

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respondent unit has chosen not to adhere to the requirement

of the Rules and continued to retain a large amount of such

CENVAT credit. Therefore, it is open to the manufacturer to

pay the duties through CENVAT credit account by debit entry.

However, if any inadmissible CENVAT credit which should

correctly have lapsed is continued to be retained and if such

amount is utilized for the purpose of payment of the Central

Excise Duty, it would mean that the appropriate duty has not

been paid and the consequences of non-payment of duty were

followed.

6. Affidavit-in-rejoinder on behalf of the petitioner is filed

contending therein that for the transfer of CENVAT credit

amount of Rs.1,58,73,511/- for the transfer of factory with

plant and machinery along with stock from Silvassa to Surat

factory, nothing has been stated in the affidavit-in-reply. The

amount of CENVAT credit was utilized for payment of excise

duty at the time of export of finished goods. The notice for the

wrong transfer of the CENVAT credit was issued on

01.11.2013 which was finally allowed by the Commissioner in

Order-in-Original on 29.09.2020. The rebate claim of Surat

factory was rejected on the ground of wrong transfer of

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credit, which was finally decided by the Commissioner as legal

transfer of CENVAT credit. On this important point, nothing

has been submitted in the affidavit-in-reply. The order dated

29.09.2020 has not been submitted before the Principal

Commissioner (RA) because ex-parte order was passed

without following principle of natural justice and without

providing fresh opportunity of hearing when Adjudicating

Authority changed.

6.1. It is further the say of the petitioner that wrong

interpretation is made of provision of Rule 11(3) of the

CENVAT Credit Rules. The petitioner was availing

Notifications No.29/2004 and 30/2004 simultaneously and

maintaining separate record as confirmed by the

Commissioner (Appeals) in his Order-in-Appeal. According to

the petitioner, the polyester filament yarn (final product) was

never absolutely exempted under Notification 30/2004-CE,

hence, provision of Rule 11(3)(2) is not applicable to the

present case. The petitioner had not opted for exemption from

whole of the duty or finished goods. Notification 30/2004-CE

is conditional exemption Notification, hence, provision of Rule

11(3) of CCR is not applicable at all in the present case and

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CESTAT has held it in its order No.A/10867-10868/2019 that

the provisions of Rule 11(3) of CCR,2004 is not applicable.

6.2. The CESTAT in the case of the petitioner had allowed

utilization of carrying forward CENVAT credit. The petitioner

had also received the rebate for export of goods prior to the

period of dispute in show cause notice. The Principal

Commissioner (RA) passed the order dated 21.01.2021

without providing the opportunity of personal hearing. Hence,

the adjudication process was in gross violation of principle of

natural justice. Further, the petitioner was unable to submit

the fresh order dated 29.09.2020 passed by the Commissioner

in his favour and CENVAT credit was allowed by this order

after first hearing was held on 17.09.2019. The respondent

No.2 passed the order dated 21.01.2021 without following the

principle of natural justice, which is required to be set aside

and remanded back with the direction to pass fresh order by

following the principle of natural justice.

7. This Court has heard extensively the learned counsels on

both the sides, who along the line of their pleadings, argued

extensively.

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8. The revisional order of the office of Principal

Commissioner (RA) and Ex-Officio Additional Secretary to the

Government of India if is looked at, this is a Revision

Application under Section 35 (EE) of the Central Excise Act

against the Order-in-Appeal dated 08.11.2012 passed by the

Commissioner (Appeals), Central Excise, Customs and Service

Tax and Order-in-Appeal dated 03.06.2015 passed by the

Commissioner (Appeals)-II, Central Excise, Customs and

Service Tax, Vadodara. These revision applications preferred

by the petitioner against the Order-in-Appeal dated

08.11.2012 passed by the Commissioner (Appeals), Central

Excise, Vapi and the order dated 03.06.2015 passed by the

Commissioner (Appeals)-II, Central Excise and Service Tax,

Vadodara have been threadbare examined by the Revisional

Authority.

8.1 The applicant preferred the Revision Application on the

ground that the entire accumulated CENVAT credit, as per

the allegation, is not illegal. The allegation is limited to the

accumulated CENVAT credit lying in balance prior to

01.03.2010 having lapsed during the time of opting Central

Excise Exemption Notification No.30/2004-CE dated

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09.07.2004.

8.2. According to the petitioner, the Commissioner (Appeals)

travelled beyond the scope of show cause notice. It appears

that the applicant had exported polyester texturised filament

yarn (finished goods) under Notification No.29/2004 dated

09.07.2004 which was manufactured from partially oriented

yarn and availed CENVAT credit in the month of March, 2010.

These finished goods were exported in March, 2010 and April,

2010 on payment of duty. The applicant was running the

factory prior to 09.07.2004 when Notification No.30/2004

came into force therefore, it had legally availed CENVAT

credit in their RG-23A Part-II Register more than Rs.1 Crore.

The applicant started to maintain separate record under

Notifications No.29 and 30 both dated 09.07.2004, according

to the Board Circular No.795/28/2004 dated 28.07.2004.

Therefore, it is the case of the petitioner that the CENVAT

credit legally availed by the applicant upto 09.07.2004 can be

carried forward in their RG-23A Part-II Register maintained

under the Notification No.29/2004-CE dated 09.07.2004.

There is no condition in Notification No.30/2004 that when

this notification would be availed, the legally availed CENVAT

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credit would be lapsed.

8.3. It is undisputed that the applicants are availing the

Notifications No.29 and 30 of 2004 by maintaining the

separate records and filing monthly ER-1 returns with Range

Officer and no question was raised by the department on

availment and utilization of CENVAT credit till they file rebate

claim for export in the month of July, 2010 under Rule 18 of

the Central Excise Rules.

9. It emerges that the petitioner had taken fresh credit of

duty paid on raw material by taking credit of the duty in RG

23A Part-II at the time of purchase of input (POY) from the

period 11.03.2010 to 31.03.2010 for production of the final

exported goods texturised yarn. For so doing, they utilized the

fresh CENVAT credit from 11.03.2010 to 31.03.2010. For

debiting duty at the time of removal of goods from the factory

for export, it was apparent from RG 23A Part-II for the month

of March, 2010 and April, 2010 and the record spoke for

itself. According to the revisional authority, the allegation of

the department that applicant had utilized the accumulated

CENVAT credit of Rs.1 Crore lying balance in RG 23A Part-II

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on 01.03.2010, is not sustainable.

9.1. The applicant physically exported the goods under ARE-

1 on payment of duty under Notification No.29/2004. It was

his case that final remittance had been received by the

applicant and in such circumstances, the rebate claim should

not be held up by the department and for the delay period of

sanction of rebate claim, interest should be provided under

section 11BB of the Central Excise Act and CBEC Circular

No.670/61/2002-CX dated 01.10.2002.

9.2. It is a matter of fact that from 09.07.2004 the applicant

started to avail both the notifications simultaneously and kept

separate record. The CBEC vide Circular No.795/28/2004-CX

dated 28.07.2004 clarified that there is no restriction on

availing both the notifications simultaneously. The CENVAT

credit prior to 09.07.2004 was carried forward in the record

maintained under Notification No.29/2004 and fresh CENVAT

credit was availed and duty on finished goods was paid

through this CENVAT Register. For any clearance of finished

goods made under Notification No.30/2004, no CENVAT

credit was availed on inputs and no duty was paid on the

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finished goods manufactured from such inputs. It is, therefore,

the case of the petitioner that accumulated amount of

CENVAT credit cannot be declared nonest and it can be

legally used for the payment of duty on finished goods for

subsequent clearance. It is further the say that provisions of

Rule 11 (3)(ii) are not applicable to the current case as their

final product POY is not absolutely exempt under Section 5A

of the Central Excise Act and it is liable to duty at the rate

given under Notification No.29/2004-CE and hence, it is

exported under the payment of duty. It is held that the right to

avail CENVAT credit accrues as soon as the scheme is availed.

The right to adjust the tax on final product accrues to the

assessee on the date when they pay the tax on the raw

material or the inputs and the right would continue until the

facility availed they had to get worked out or until those goods

exists as per the decision of the Apex Court in M/s.Eicher

Motors Limited vs. Union of India, [(1999) 106 ELT 3 (SC)].

Relying on the CBEC Circular No.845 of 2007 dated

01.02.2007 wherein it is clarified that in case the credit taken

on input used in manufacture of the said goods cleared under

Notification No.14/2004 or Notification No.30/2004 has been

reversed before utilization, it would amount to credit not

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having been taken. It is the say of the petitioner that the

applicant which has reversed the CENVAT credit involved in

the stock of 31.07.2006 on 01.08.2006 and cleared the

texturized yarn under Notification No.30/2004, the Board

Circular does not prohibit the assessee to avail the

Notification No.30/2004 and the balance amount in such

eventuality of CENVAT credit cannot lapse hence, the serious

challenge is made to the show cause notice.

9.3. As the plant from Silvassa along with stock and plant

and machinery shifted to Kim plant and also transfered

CENVAT credit of Rs.1,58,73,511/- during the month of

November, 2012 under Rule 10 of the CENVAT Credit Rules

and the CENVAT credit was legally earned by the petitioner of

the Silvassa unit and transferred to Kim unit, according to it,

the accumulated amount of CENVAT credit can be utilized by

the applicant and there is no need to maintain a balance of

Rs.2,92,22,736/- as stated in the impugned show cause notice.

The provisions of 11 (3)(ii) of the CENVAT Credit Rules, as

urged by the petitioner, would apply when the final product is

absolutely exempt whereas the applicant's product -

texturised yarn/ Grey fabrics are not absolutely exempted.

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Under Section 5A of the Central Excise Act, the goods are

liable to duty at the rate given under Notification No.29/2004-

CE therefore, the provisions of 11(3)(ii) is not applicable in

their case and therefore, it is exported under the payment of

duty.

10. We notice that after detailed examination of sub-rule (3)

(i) and (ii) of Rule 11 of the CENVAT Credit Rules so also the

Circular No.795 which allows the manufacture to avail both

Notifications Nos.29 and 30 as well as considering various

decisions, the revisional authority held that the applicant had

opted for benefit of exemption notification continuously for

years onwards after 09.07.2004. The CENVAT credit balance

carried forward in the CENVAT account lapsed after insertion

of sub-rule (3) of Rule 11 of the CENVAT Credit Rules w.e.f.

01.03.2007 since the applicant availed total exemption on all

the final products during the aforesaid period and as such the

duty paid from such lapsed CENVAT credit on the said

exported goods at a much later date is not a payment of duty

and therefore, the rebate claims were rightly held

inadmissible by Commissioner (Appeals).

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10.1. While so holding it also had considered the insertion of

sub-rule (3) to Rule 11 of the CENVAT Credit Rules vide

Notification No.10/2007 dated 01.03.2007, which stipulates

that if a manufacturer opts for exemption from whole of duty

of excise leviable on the said final product under a notification

issued under Section 5A of the Act or the said final product

has been exempted absolutely under Section 5A of the Act, he

shall be required to pay an amount equivalent to the CENVAT

credit taken by him in respect of inputs received for use in the

manufacture of the said final product and is lying in stock or

in process or is contained in the final product lying in the

stock and after deducting the said amount from the balance of

CENVAT credit, if any lying in its credit.

10.2. Sub-rule (3) of Rule 11 of the CENVAT Credit Rules

inserted vide Notification No. 10-CE is interpreted by the

revisional authority thus:-

"10. Sub-rule (3) to Rule 11 of Cenvat Credit Rules, 2004 was inserted vide Notification No. 10/2007-C.E.

(N.T.), dated 1-3-2007 which reads as follows

"A manufacturer or producer of a final product shall be required to pay an amount equivalent to the Cenvat credit, if any, taken by him in respect

C/SCA/9678/2021 CAV JUDGMENT DATED: 21/02/2023

of inputs received for use in the manufacture of the said final product lying in stock, if

(i) he opts for exemption from whole of duty of excise leviable on the said final product manufactured or produced by him under a notification issued under Section 5A of the Act; or

(ii) the said final product has been exempted absolutely under Section 5A of the Act, and after deducting the said amount from the balance of Cenvat credit, if any, lying in his credit, the balance, if any, still remaining shall lapse and shall not be allowed to be utilized for payment of duty on any other final product whether cleared for home consumption or for export, or for payment of service tax on any output service; whether provided in India or exported."

The sub-rule (3)(i) & (ii) of Rule 11 of Cenvat Credit Rules, 2004 clearly stipulates that if a manufacturer opts for exemption from whole of duty of excise leviable on the said final product under a Notification issued under Section 5A of the Act or the said final product has been exempted absolutely under Section 5A of the said Act, he shall be required to pay an amount equivalent to the Cenvat credit taken by him in respect of inputs received for use in the manufacture of the said final product and is lying in stock or in process or is contained in the final product lying in the stock and after deducting the said amount from the balance of Cenvat credit, if any lying in his credit, the balance if any still remaining shall lapse and shall not be allowed to be utilized for payment of duty on any other final product whether cleared for home consumption or for export or for payment of Service Tax on any output service, whether provided in India or exported. The Notification No. 30/2004-C.E. provides for exemption from whole of duty and therefore Government finds that the excess Cenvat credit lying in balance as on 09.07.2004 should have lapsed as on 01.03.2007

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when sub- rule (3) of Rule 11 of the Cenvat Credit Rules, 2004 was introduced on a subsequent date. Government also observes that even if they had opted for the benefit of notification before 1.3.2007 they were required to expunge such credit when the rules were amended and the sub-rule (3) of Rule 11 of the Cenvat Credit Rules, 2004 was introduced. It is also on record that the Central Excise duty paid by the Applicant for the impugned exports for which they claimed rebate was paid out of such accumulated Cenvat Credit as on 09.07.2004 which should have lapsed w.e.f. 01.03.2007 as explained hereinabove. Since there was no accumulation of Cenvat credit validly in law, there was no question of duty being paid therefrom.

11. Government observes that the Applicant has relied upon Circular No.795/28/2004-CX dated 28.07.2004 which allows the manufacturer to avail both Notification Nos. 29/2004-C.E. and 30/2004-C.E. simultaneously. Even in this circular, at clarification to issue No. 2, it was clarified that for manufacturers who had pre-budget stock of inputs (or stock of semi finished or finished goods which contained inputs) on which credit had already been availed, he can continue to pay duty on the finished goods made therefrom at post budget rates or he can reverse the credit amount and avail full exemption on the finished goods. As the Applicant had opted benefit of Notification No.30/2004 CE from 09.07.2004 onwards and availed exemption from payment of duty they were required to reverse the entire Cenvat credit amount before opting for exemption under the said Notification.

13. Government further observes that though the Applicant had availed the Cenvat Credit accumulated for the period prior to 09.07.2004 when the Cenvat Credit rules were amended and the sub-rule (3) of Rule 11 of the Cenvat Credit Rules, 2004 was introduced, they opted for the exemption from payment from duty vide Notification No. 30/2004-CE continuously for the years onwards after 09.07.2004.

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Hence, they were bound to follow the sub-rule (3) of Rule 11 of the Cenvat Credit Rules, 2004 which they failed to do."

10.3. It has distinguished the decision relied upon by the

petitioner on its different set of facts:-

"15. In view of the forgoing discussion Government holds that as the Applicant had opted for benefit of exemption Notification No.30/2004 CE continuously for the years onwards after 09.07.2004, the Cenvat Credit Balance carried forward in their Cenvat accounts lapsed after insertion of sub-rule (3) of Rule 11 of Cenvat Credit Rules, 2004 w.e.f. 01.03.2007 since the Applicant availed total exemption on all their final products during the aforesaid period and as such the duty paid from such lapsed Cenvat Credit on the said exported goods at a much later date is not a payment of duty and therefore their rebate claims were rightly held inadmissible by the Commissioner(Appeals)."

10.4. These all depend entirely on the interpretation of sub-

rules 3(i) and (ii) of Rule 11 of the CENVAT Credit Rules

which obligates the manufacturer to pay an amount

equivalent to the CENVAT credit taken by him in respect of

inputs received for use in the manufacture of the final product

if he has opted for exemption from whole of the duty of excise

on the final product under the notification issued under

Section 5A.

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10.5. Much emphasis has been laid on the Notification

No.30/2004 which provides for the exemption from whole of

the duty which led the revisional authority to interpret that

excess CENVAT credit lying in balance as on 09.07.2004

should have lapsed on 01.03.2007 when sub-rule (3) of Rule

11 of the CENVAT Credit Rules was introduced on subsequent

date, with the amendment of the Rules, even if the option was

for seeking the benefit of notification before 01.03.2007 was

given, with the amendment of the Rule and particularly, sub-

rule 3 of Rule 11 of the CENVAT Credit Rules, whether was

needed to be expunged and the central excise duty paid by the

applicant for the expunged exports for which the claim rebate

was paid out of such accumulated CENVAT credit as on

09.07.2004 which should have lapsed w.e.f. 01.03.2007 and

whether there was any accumulation of the CENVAT credit

validly under the law and where the petitioner could have paid

the duty therefrom, were the questions which have been

answered by the revisional authority.

11. Without entering into as to whether the interpretation

made is in accordance with law or not, this Court notices that

the revisional authority itself has made a note of the fact that

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there was a change of the revisional authority. Relying on the

written submissions of the petitioner of 09.09.2019, where it

had requested to pass the order considering the documents

available in record and they did not want any personal

hearing since one such hearing had already taken place on

18.09.2019 has been relied upon to decide the matter on the

strength of the record. Even if it is a matter of interpretation

of the Rules, the Court is of the firm opinion that the authority

which hears the matter should be deciding and not the other

authority.

11.1. Assuming that the petitioner would have nothing else to

further add, it is a serious violation of principles of natural

justice, if the authority which heard the matter is different

than the one which actually adjudicates. This serious lapse

would surely lead this Court to interfere with the order of the

revisional authority and quash the order for the parties to be

relegated to the concerned revisional authority which shall

give a personal hearing to the petitioner who will be also

permitted to adduce further document or written submissions

within a period of two weeks of the receipt of copy of this

judgment and the authority concerned shall fix the date of

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personal hearing through e-mail.

12. Accordingly, the petition is allowed to the aforesaid

limited extent and disposed of accordingly.

(SONIA GOKANI,CJ)

(NISHA M. THAKORE,J) Bhoomi