CESTAT Sets Aside ₹3.63 Crore CENVAT Credit Demand Against India Cements Over Imported Coal

In a relief to cement major The India Cements Ltd., the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT), Chennai has set aside a Rs.3.63 crore CENVAT credit demand along with interest and penalty, holding that credit cannot be denied merely because Countervailing Duty (CVD) was paid at concessional rates on imported steam coal.

A Chennai bench of Judicial Member Ajayan T.V. and Technical Member Vasa Seshagiri Rao allowed the company's appeal against an Order-in-Original dated December 14, 2017, passed by the Commissioner of GST and Central Excise, Tiruchirappalli, which had confirmed a CENVAT credit demand of Rs. 3.63 crore along with interest and a penalty of Rs. 2.42 crore for the period September 2012 to June 2017.

The dispute arose after the Department objected to the availment of CENVAT credit on CVD paid at concessional rates of 1% and 2% on imported steam coal under a 2012 notification. The Revenue argued that such concessional duty was not “equivalent to duty of excise” under Rule 3(1)(vii) of the CENVAT Credit Rules, 2004, and therefore credit was not admissible.

Rejecting this contention, the tribunal held that CVD is an additional duty of customs levied under Section 3 of the Customs Tariff Act, and its eligibility for credit depends on the nature of the levy and not the rate at which duty is paid.

“The expression “equivalent to duty of excise” has been judicially interpreted to refer to the measure or yardstick of levy and not to its intrinsic nature. Thus, the levy under Section 3 remains a customs duty, albeit quantified with reference to excise duty.” the bench said.

Clarifying further, the tribunal observed that CVD on imported coal is nothing but “additional duty of customs” under Section 3(1), and the terms are used interchangeably. It held that for availing credit under Rule 3(1)(vii), what matters is the nature of the levy and not its nomenclature or the rate at which it is paid.

The bench noted that the rules permit credit of such additional duty without prescribing any condition that it must be paid at the tariff rate. It cautioned that reading such a restriction into the rule would amount to adding words to the statute, which is impermissible.

Emphasising the objective of the CENVAT credit scheme, the tribunal said denying credit solely because duty was paid at a concessional rate would defeat the purpose of avoiding cascading of taxes.

On limitation, the tribunal found that the issue was interpretational and that the company had disclosed all material facts in its statutory records. It held that there was no suppression, fraud, or intent to evade duty.

“The Department has failed to establish any element of suppression or intent to evade duty. The appellant has acted on a bona fide interpretation of law and has disclosed all relevant facts. Therefore, penalty is not imposable,” the bench observed.

Holding that the demand was unsustainable both on merits and limitation, the tribunal set aside the impugned order in its entirety and allowed the appeal with consequential relief.

For Appellant: Advocate Raghav Rajeev

For Respondent: O.M. Reena, Authorised Representative