The issue involved in the present appeal is whether appellant is entitled to refund of CENVAT credit taken on inputs destroyed in fire accident when the same amount is recovered from the Insurance Company
The applicability of unjust enrichment was the bone of contention for allowing refund even though Section 11 B(2) (c) of CEA,1944 carves out an exception for refund of cenvat credit , then too it was disputed by the department that since , duty element had already been recovered from Insurance Company , it cannot be allowed.
The tax litigation of M/s Sabero Organics Gujarat Ltd was handled by Shri Anand Mishra, Advocate,Amlegals .
The assessee has paid the premium and covered the risk of this capital goods and when the goods were destroyed in terms of the insurance policy, the Insurance Company has compensated the assessee. It is not a case of double payment as contended by the department.
………prior to introduction of sub-rule (5C), there was no provision, which provided for reversal of the credit by the excise authorities where it has been lawfully taken by a manufacturer. Therefore, the credit accrued at the moment the raw material or the input was used in manufacturing of a final product which was neither exempt from duty nor carried nil rate of duty. Such being the provision, as it stood in the Cenvat Credit Rules prior to September 7, 2007, there is no scope of application of equitable doctrine against the assessee and in favour of the Revenue on the ground that it will amount to conferring of double benefit
The entire order is reproduced herein below :
CUSTOMS EXCISE & SERVICE TAX APPELLATE TRIBUNAL,West Zonal Bench, Ahmedabad
Appeal No. : E/327/2010
(Arising out of OIA-KRS/419/VAPI/2009 dated 30.11.2009, Passed by Commissioner (Appeals) Central Excise, & S.T., Vapi)
M/s. Sabero Organics Gujarat Limited : Appellant (s)
Commissioner of Central Excise & S.T., Vapi : Respondent (s)
Represented by :
For Appellant (s) : Shri Anand Mishra, Advocate
For Respondent (s) : Shri S.K. Shukla, Authorised Representative
Mr. H.K. Thakur, Honble Member (Technical)
Date of Hearing / Decision : 29.06.2015
ORDER No. A/10897 / 2015 Dated 29.06.2015
Per : Mr. H.K. Thakur;
This appeal has been filed by the appellant with respect to OIA No. KRS/419/VAPI/2009 dated 30.11.2009 issued on 04.12.2009.
2. The issue involved in the appeal is whether or not appellant is entitled to refund of an amount paid by the appellant representing CENVAT credit availed on inputs used in the manufacture of finished goods lost in fire accident when appellant has recovered the said amount from the Insurance Company. Adjudicating authority and the first appellate authority has held the refund to be inadmissible as the burden of duty sought as refund has already been passed on to the Insurance Company. The first appellate authority relied upon the case law of Mridul Enterprises [2007 (213) ELT 715 (Tri. Del.)] to hold that CENVAT credit was not to be allowed if the insurance claim has already been granted by the Insurance Company.
3. Shri Anand Mishra (Advocate) appearing on behalf of the appellant relied upon the case law of Karnataka High Court in the case of CCE, Bangalore vs. Tata Advanced Materials Limited [2011 (271) ELT 62 (Kar.)] where it has been held that credit taken with respect to capital goods destroyed in fire accident on which CENVAT credit was availed, was proper. He further relies upon the case law of CCE, Ahmedabad vs. Intas Pharmaceuticals Limited [2013 (289) ELT 256 (Guj.)] where a similar view has been taken by the jurisdictional Gujarat High Court.
4. Shri S.K. Shukla (AR) on behalf of the Revenue relied upon the case of Punjab & Haryana High Court as reported at CCE, Chandigarh vs. Aagosh Poly Foam [2010 (255) ELT 204 (P&H)]. He also relied upon the case law of CESTAT Delhi reported as Raltronic India Pvt. Limited vs. CCE, Noida [2008 (226) ELT 750 (Tri. Del.)], to argue that credit was not admissible.
5. Heard both sides and perused the case records. The issue involved in the present appeal is whether appellant is entitled to CENVAT credit taken on inputs destroyed in fire accident when the same amount is recovered from the Insurance Company. Both sides have relied upon certain case laws which are contrary to each other. These judgments are delivered by the Hon’ble High Court of Punjab & Haryana in the case of CCE, Chandigarh vs. Aagosh Poly Foam (supra) and Karnataka High Court in the case of CCE, Bangalore vs. Tata Advanced Materials Limited (supra) and the Hon’ble High Court of Gujarat in the case of CCE, Ahmedabad vs. Intas Pharmaceuticals Limited (supra). The case law of CCE, Chandigarh vs. Aagosh Poly Foam is with respect to Rule 57-I of erstwhile Central Excise Rules, 1944. However, in the case of CCE, Bangalore vs. Tata Advanced Materials Limited, Hon’ble Karnataka High Court made the following observation:-
6. Therefore, it is clear that there is no provision in the rules which provides for a reversal of the credit by the Excise Authorities except where it has been irregularly taken in which event it stands cancelled or if utilised has to be paid for. This is not the case of the revenue. In the instant case, when the assessee purchased the capital goods and when he has paid the excise duty on them, in law, he is entitled to get the credit on the duty paid while clearing the finished products from his factory. Accordingly, he utilised the cenvat credit and cleared the finished products. It is about three years after such payment, the capital goods were destroyed in fire. As the assessee had insured the said capital goods, he put forth a claim for payment of the loss sustained by him, which includes the payment of excise duty. The Insurance Company in terms of the policy has compensated the assessee. Merely because the Insurance Company paid the assessee the value of goods including the excise duty paid, that would not render the availment of the cenvat credit wrong or irregular. At the same time, it does not confer any sight, on the Excise Department to demand reversal of credit or default to pay the said amount. The assessee has paid the premium and covered the risk of this capital goods and when the goods were destroyed in terms of the insurance policy, the Insurance Company has compensated the assessee. It is not a case of double payment as contended by the department. At any rate, the Excise Department has no say in the instant case as held by the Apex Court. In that view of the matter, the substantial questions of law framed in this appeal are answered in favour of the assessee and against the revenue. Accordingly, the appeal is dismissed.
5.1 Hon’ble Gujarat High Court in the case of CCE, Ahmedabad vs. Intas Pharmaceuticals Limited (supra) in Para-6, reproduced below, observed that there was an amendment to Rule 3 (5C) of the Cenvat Credit Rules, 2004 with effect from 07.09.2007 by which credit is required to be reversed when payment of duty is ordered to be remitted under Rule 21 of Central Excise Rules, 2002:-
6. The referring Division Bench also noted that the contention of the assessee that in terms of Rule 3 of Cenvat Credit Rules, the right of the respondent to avail and retain Cenvat Credit was crystallized the moment the raw material or the input was used in manufacturing of a final product which was neither exempt from duty nor carried nil rate of duty would also require a closer scrutiny. The referring Division Bench further noted the additional contention of the assessee that sub-rule 5(C) of Rule 3 of Cenvat Credit Rules having been introduced with effect from 7th September, 2007, the question whether for the period prior to such date, the requirement of reversal of Cenvat Credit would arise or not would also be met with if such rule was held to be clarificatory or declaratory in nature. The referring Division Bench further recorded that under the said newly introduced sub-rule, it was provided that when on the goods manufactured or produced by the assessee, the payment of duty was ordered to be remitted under Rule 21 of the Central Excise Rules, the Cenvat Credit taken on the inputs used in the manufacture or production of said goods should be reversed. Thus, according to the referring division Bench, at least from 7th September, 2007, the legislative position has become amply clear. However, the referring Division Bench also took note of the fact that whether it could be said that prior to 7th September, 2007, in absence of sub-rule 5(C) to Rule 3, there was any such legislative intent, is a matter to be probed into.
6. The final order passed by Hon’ble Gujarat High Court held that above amendment carried out in Rule 3 of the Cenvat Credit Rules is only prospective and not retrospective. The said observations are made in Para 16 to 20 of the said order and are reproduced below:-
16. If we go through the provisions of the Rules relating to Cenvat, we find that prior to introduction of sub-rule (5C), there was no provision, which provided for reversal of the credit by the excise authorities where it has been lawfully taken by a manufacturer. Therefore, the credit accrued at the moment the raw material or the input was used in manufacturing of a final product which was neither exempt from duty nor carried nil rate of duty. Such being the provision, as it stood in the Cenvat Credit Rules prior to September 7, 2007, there is no scope of application of equitable doctrine against the assessee and in favour of the Revenue on the ground that it will amount to conferring of double benefit. The moment sub-rule (5C) was introduced, the Legislature made its intention clear that from the date of coming into force of the said amended rule, in case of future remission on the ground mentioned in the said sub-rule, there will be reversal of the credit.
17. In this connection, we may profitably refer to the following observation of the Supreme Court in the case of Delta Engineers v. State of Goa reported in (2009) 12 SCC 110 laying down the principles to be followed in determining whether a statutory amendment is retrospective or clarificatory in nature :
We may next consider whether the 1992 and 1994 Amendments to the Rules were retrospective in operation. In Zile Singh v. State of Haryana this Court held: (SCC p. 8, para 13)
13. It is a cardinal principle of construction that every statute is prima facie prospective unless it is expressly or by necessary implication made to have a retrospective operation. But the rule in general is applicable where the object of the statute is to affect vested rights or to impose new burdens or to impair existing obligations. Unless there are words in the statute sufficient to show the intention of the legislature to affect existing rights, it is deemed to be prospective only. (emphasis supplied)
The Amendment Rules do not provide that they are retrospective in operation. Nor do the circumstances warrant such an inference. In fact, the contention of the respondents is not that power to levy fees/charges for use of riverine land was created/vested in the Port Authorities, by virtue of the Amendment Rules and that such power was given to levy fees/charges retrospectively. The contention has been that the power to levy fees/charges existed ever since the Rules came into force on 5-4-1984 and that position was merely clarified by the Amendment Rules in 1992 and 1994.
35. We have already held that the Amendment Rules of 1992 and 1994 are not clarificatory, but are provisions investing the Port Authorities with the power to levy and collect charges for occupation of government riverine land. Therefore, the demand for charges for use of government riverine land is valid only from 3-3-1994. Therefore the Port Authorities could not demand or recover any amount for the period prior to 3-3-1994. The Port Authorities are therefore liable to refund any amount recovered within three years prior to the date of the writ petition. Obviously, any amount paid during a period beyond three years from the date of the writ petition, is not recoverable as barred by delay and laches. (Emphasis supplied by us).
18. In the cases before us, we have already pointed out that the amendment has been effected from a particular date and at the same time, prior to such amendment, there was no provision of reversal as introduced in the Rules by way of amendment under the circumstances stated therein. Thus, it is creation of a new right in favour of the Revenue and in such circumstances, in the absence of any contrary intention reflected from any of the provisions of the Statute, the amendment must be held to be prospective.
19. We are consequently unable to accept the contention of Mr. Parikh and Mr. Ravani, the learned counsel appearing on behalf of the Revenue, that the said amended rule is clarificatory in nature. It is apparent from the notification that the same was given effect to from a specified date, i.e., September 7, 2007.
20. Such being the position, we hold that sub-rule (5C) of the Rules is effective from September 7, 2007 and for input credited earlier, there is no scope of reversal of the credit if the finished product becomes unfit for human consumption unless any condition has been imposed for remission of duty in terms of Rule 21 of the Central Excise Rules, 2002 making it clear that the credit already taken is to be reversed.
In the present appeal also the period of dispute is before 07.09.2007, therefore, the law laid down by the jurisdictional High Court squarely applies to the case of the appellant and has to be followed.
7. Appeal filed by the appellant is allowed with consequential relief, if any.
(Order dictated and pronounced in the Court)
by Anand Mishra, Founder Advocate, AMLEGALS
( The author is a leading advocate and handling cases in Tribunals & High Courts of India. He can be contacted on firstname.lastname@example.org .For more please refer www.amlegals.com .