CESTAT Hyderabad Allows CENVAT Credit On Concessional CVD, Says Importer Free To Choose Beneficial Exemption

The Hyderabad Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has held that an importer cannot be compelled to avail a particular exemption notification where more than one option is available.

It ruled that the importer is free to choose the notification that is most beneficial. Applying this principle, the tribunal held that India Cements Ltd. was entitled to avail the CENVAT credit of the Countervailing Duty (CVD) paid at the concessional rate of one per cent/two per cent on imported steam coal.

It rejected the department's contention that such credit was unavailable because domestically manufactured steam coal was exempt from central excise duty.

A bench of Judicial Member Angad Prasad and Technical Member P. Anjani Kumar partly allowed the appeal filed by India Cements Ltd.

“When more than one notification is available, the appellant importer is free to choose any notification and no particular notification can be pressed upon the appellant.”, it ruled.

The dispute arose after the Department denied CENVAT credit claimed on the concessional CVD paid on imported steam coal. It maintained that since domestically manufactured steam coal was exempt from central excise duty, the company could not claim credit of the concessional CVD paid on imports. Show cause notices were issued demanding reversal of the credit along with interest and penalties.

India Cements argued that Rule 3 of the CENVAT Credit Rules, 2004 permits credit of the additional duty leviable under Section 3 of the Customs Tariff Act. It submitted that the Rules do not bar credit merely because the duty was paid at a concessional rate. The company also contended that where more than one exemption notification is available, an importer is free to choose the one most beneficial to it.

The Department argued that allowing such credit would be contrary to the CENVAT Credit Scheme because central excise duty on steam coal stood exempt.

The tribunal accepted the company's submissions. It found that Rule 3 permits credit of the additional duty leviable under Section 3 of the Customs Tariff Act. It also noted that the Department had not alleged violation of any of the statutory conditions for availing CENVAT credit. Since those conditions were not in dispute, the tribunal held that the credit could not be denied. It further noted that the Chennai Bench had already decided the same issue in favour of India Cements and that several coordinate benches had taken a similar view.

“Cenvat Credit is admissible to the goods which are duty paid, which are brought into the factory of production which are used in the manufacture of excisable goods cleared on payment of duty and when the inputs are received in the factory under the cover of a document prescribed under Rule 9 of CCR. It is not the case of the Department that any of the conditions for availing Cenvat Credit are violated by the appellants. Therefore, we find that credit cannot be denied.”, it ruled.

On the remaining issues in the appeal, India Cements argued that it had already reversed other CENVAT credits and paid interest before the show cause notices were issued. It also contended that there was no basis to invoke the extended period of limitation.

The tribunal agreed that no case had been made out for invoking the extended period. It therefore held that penalty under Section 11AC could not be imposed. However, it declined to grant complete immunity from penalty, observing that a reduced penalty would meet the interest of justice.

The tribunal accordingly set aside demands of ₹23.98 lakh and ₹33.03 lakh relating to denial of CENVAT credit on imported steam coal, along with the corresponding penalties. It left the remaining CENVAT credit demands undisturbed and reduced the balance penalties to ₹1.50 lakh

For Appellant: Advocate Narendra Dave

For Respondent: Dr. T.V. Rajesh, Authorised Representative