Bombay High Court Dismisses Revenue’s Appeal on Denial of CENVAT Credit for Exempted Goods, Affirming Tribunal’s Decision Based on Settled Law

Court’s Decision

The Bombay High Court dismissed the Revenue’s appeal filed under Section 35G of the Central Excise Act, 1944. The court upheld the Tribunal’s decision, which allowed the respondent to claim CENVAT credit despite the goods being exempted from excise duty. The court reasoned that the supplier’s payment of excise duty, which was not challenged by the Revenue, entitled the respondent to avail CENVAT credit. It ruled that no substantial question of law arose in the case.

Facts

1. The case concerns the availability of CENVAT credit on “Engraved Printing Cylinder” and “Copper Engraved Cylinder,” goods that were fully exempted from excise duty under Notification No. 49/2006-C.E.
2. The respondent purchased these goods and claimed CENVAT credit based on the excise duty paid by the supplier.
3. The Revenue contested this credit, arguing that since the goods were exempt, the respondent was not entitled to such a benefit.
4. The Tribunal dismissed the Revenue’s claim, holding that as long as the duty paid by the supplier was lawful and unchallenged, the respondent could claim CENVAT credit.

Issues

The legal questions examined were:

1. Entitlement to CENVAT Credit: Can CENVAT credit be availed on goods exempted from excise duty when the supplier has paid the duty?
2. Tribunal’s Finding: Did the Tribunal err in dropping the duty demand and associated penalties?

Petitioner’s Arguments (Revenue)

1. The Revenue argued that the respondent wrongfully availed CENVAT credit on goods that were fully exempt from duty.
2. The duty payment by the supplier did not entitle the respondent to credit under Rule 3 of the CENVAT Credit Rules, 2004.
3. They claimed that the Tribunal erred in dismissing the duty demand, penalties, and interest totaling ₹2,04,41,446/-.

Respondent’s Arguments

1. The respondent cited established jurisprudence, arguing that excise duty, once paid by the supplier and not challenged, cannot be questioned when claimed as CENVAT credit.
2. They referenced decisions from multiple High Courts and the Tribunal, including:
   • Nestle India Ltd. (Bombay High Court)
   • Kris Flexipacks Pvt. Ltd. (CESTAT)
   • Judgments from Gujarat, Madras, and Punjab & Haryana High Courts.
3. They maintained that the Tribunal correctly applied these precedents to conclude that the respondent was entitled to the credit.

Analysis of the Law

1. CENVAT Credit Rules: Rule 3 of the CENVAT Credit Rules, 2004, permits availing credit on excise duty paid, provided it is legally valid.
2. Tribunal’s Findings: The Tribunal found no evidence to suggest that the supplier’s payment of duty was challenged by jurisdictional officers.
3. High Court Precedents: The court analyzed rulings in similar cases, particularly the Nestle India Ltd. and Kris Flexipacks Pvt. Ltd. cases, where it was held that:
   • Duty paid and unchallenged entitles recipients to credit.
   • Any question about credit’s validity must originate from a challenge to the supplier’s duty payment.

Precedent Analysis

1. The court emphasized its previous decision in Commissioner of Central Excise vs. Betts India Ltd., where a similar fact pattern led to the dismissal of the Revenue’s appeal.
2. It noted that the Tribunal’s reliance on judgments from various High Courts and its own prior rulings was appropriate and aligned with established law.
3. The Revenue failed to demonstrate how these precedents were inapplicable or distinguishable.

Court’s Reasoning

1. The Tribunal’s findings were factual and unchallenged by the Revenue. The Tribunal determined that:
   • The supplier’s payment of duty was lawful.
   • The respondent availed credit based on valid duty payment documents.
2. The court concluded that no perversity or error existed in the Tribunal’s approach.
3. The Revenue’s appeal lacked the merit necessary to establish a substantial question of law, as it did not challenge the findings of fact or the applicability of precedents.

Conclusion

The court dismissed the appeal, reiterating that:

1. If excise duty is paid by the supplier and deemed lawful, the recipient cannot be denied CENVAT credit.
2. No substantial question of law arose from the Tribunal’s findings, which were rooted in established jurisprudence.

Implications

1. The judgment reinforces the principle that excise duty, once paid and unchallenged, permits recipients to claim CENVAT credit even for exempt goods.
2. It highlights the binding nature of appellate findings when unchallenged.
3. The ruling will guide future cases involving disputes over CENVAT credit on exempted goods, emphasizing the importance of challenging duty payments at the supplier level.

Also Read – Delhi High Court Reaffirms Limited Scope of Writ Jurisdiction Under Article 226: Statutory Remedies Must Be Exhausted Before Addressing Alleged Police Misconduct and Custodial Torture