No Cenvat Credit Reversal On Sulphuric Acid Supplied Duty-Free To Fertilizer Manufacturers: CESTAT Hyderabad

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Hyderabad, has held that manufacturers are not required to reverse Cenvat credit on Sulphuric Acid supplied to fertilizer manufacturers without payment of excise duty under a conditional government notification.

The tribunal held that such supplies cannot automatically be treated as "exempted goods" merely because no duty was paid on them.

The tribunal observed that the product remained dutiable. It said the exemption was available only for specified supplies made after complying with the prescribed statutory procedure.

A bench of Judicial Member Angad Prasad and Technical Member A.K. Jyotishi held that the exemption was conditional and applied only to particular transactions.

"A careful reading of Notification No. 12/2012-CE shows that the exemption is not unconditional. The exemption is available only when the recipient manufacturer complies with the elaborate statutory procedure prescribed under the Rules of 2001. Thus, exemption is transaction-specific and conditional. The goods themselves do not become permanently exempt merely because, in a particular transaction, they are cleared under the notification. The same Sulphuric Acid manufactured by the appellant is admittedly cleared on payment of duty to numerous buyers. Therefore, the commodity itself continues to remain dutiable. Only specified clearances made under statutory safeguards are permitted without payment of duty. Hence, the Commissioner (Appeals), in our opinion committed an error in treating the goods themselves as exempted goods.", the tribunal observed.

The Andhra Sugars Ltd. manufactures Sulphuric Acid. During the relevant period, it cleared part of its production on payment of excise duty.

It also supplied Sulphuric Acid to fertilizer manufacturers without paying excise duty under a government scheme meant for specified manufacturers, after following the prescribed statutory procedure.

The Department treated those duty-free supplies as clearances of exempted goods. It argued that since the company had availed common Cenvat credit without maintaining separate accounts, it was required to reverse part of that credit. The adjudicating authority rejected the demand. However, the Commissioner (Appeals) ruled in favour of the Department, leading to the present appeals.

The tribunal disagreed. It observed that the statutory procedure lays down a detailed mechanism before such duty-free supplies can be made. The scheme requires procurement certificates, verification by the jurisdictional authorities, execution of bonds, maintenance of records and end-use verification. It also provides for recovery of duty if the statutory conditions are violated.

"The Rules of 2001 constitute a complete statutory code. They prescribed procurement certificate; verification by jurisdictional authorities; execution of bond; maintenance of records; end-use verification; and recovery of mechanism on case of diversion. The liability to safeguard Revenue does not disappear. It merely shifts to the recipient manufacturer if statutory conditions are violated. This statutory mechanism clearly demonstrates that the exemption is conditional and purpose-oriented. Therefore, such removals cannot be equated with ordinary exempted clearance contemplated under Rule 6.", the tribunal observed.

Relying on the Rajasthan High Court's decision in Hindustan Zinc Ltd., later affirmed by the Supreme Court, the tribunal held that goods cleared under such a conditional scheme do not become exempted goods merely because duty is not paid at the time of clearance.

The tribunal also noted that it had consistently decided the same issue in the company's favour for earlier as well as subsequent periods.

Since there was no change in the facts or the law, it held that judicial discipline required those decisions to be followed. It further observed that merely filing an appeal against an earlier tribunal order did not make that decision non-binding unless a superior court had stayed its operation.

The tribunal rejected the Department's reliance on the Supreme Court's decisions in Parle Exports and Oswal Agro Mills. It held that those judgments dealt with the interpretation of exemption notifications and did not answer the issue before it, namely whether conditional duty-free supplies attract Rule 6 of the Cenvat Credit Rules.

On limitation, the tribunal held that the dispute was purely one of interpretation. It observed that the Department was aware of the clearances through the statutory returns filed by the company. Finding no suppression of facts or deliberate attempt to evade duty, it held that the extended period of limitation could not be invoked. It also set aside the demands for interest and penalty.

The tribunal accordingly set aside the Commissioner's order and allowed the company's appeals with consequential relief in accordance with law.

For Appellant: Advocate B. Venu Gopal, 

For Respondent (Revenue): Shri Dr. T.V. Rajesh, Authorized Representative (AR)