Dr. S. Muralidhar, J
1. These are two writ petitions raising a common question of law and accordingly are being disposed of by this common judgment.
2. W.P. (C) No.6706/2016 is by Global Ceramics Pvt. Ltd. (“GCPLâ€) challenging an order dated 23rd June, 2016 passed by the Customs and
Central Excise Settlement Commission (“CCESCâ€). The grievance of the Petitioner GCPL is that the CCESC declined to permit adjustment of
the duty already paid and Cenvat Credit which had been allowed by it in other similar cases including the decision of the CCESC dated 16th
December, 2015 in the case of B.R. Ceramics (P) Ltd. (“BRCPLâ€).
3. The companion petition is by the Principal Commissioner of Central Excise, Delhi-1 (hereafter, “the Departmentâ€) questioning the
aforementioned decision of the CCESC in the case of BRCPL contending that the Cenvat Credit as claimed and allowed to BRCPL by the CCESC,
was not permissible.
4. The background facts in W.P. (C) 6706 of 2016 are that GCPL imported ceramic tiles between June, 2010 and January, 2014 and paid:
(i) Basic customs duty;
(ii) Additional Duty of Customs equal to the excise duty commonly known as countervailing duty (“CVDâ€); and
(iii) Education Cess.
5. It is stated that CVD was paid on the basis of the maximum retail price (“MRPâ€) declared on the unit containers of ceramic tiles as notified
under Section 4-A of the Central Excise Act, 1944 (“CE Actâ€). It is pointed out that the ceramic tiles are included in the Third Schedule to the
CE Act whereby any process such as packing, re-packing or altering the MRP is deemed to be “manufacture†under Section 2 (f) (iii) of the CE
Act. It is pointed out that the imported tiles were sold to numerous dealers, some of whom sold the tiles at a price higher than the MRP. Thereby the
provisions of Section 2 (f) (iii) of the CE Act stood attracted. This led to issuance of a show cause notice (“SCNâ€) demanding duty of Rs.3,69,
76,139.00 and proposing penalty to many of the dealers including GCPL.
6. GCPL filed an application before the CCESC admitting duty liability of Rs.30,79,862/- in addition to Rs. 25,00,000.00 deposited during investigation
and interest liability of Rs. 16,51,695.00. GCPL also sought adjustment of CVD Rs. 2,80,42,411/-paid at the time of import and Cenvat credit of
Rs.16,10,252.00 paid as Service Tax on input services.
7. By the impugned order dated 23rd June 2016, the CCESC left the issue of claiming adjustment of duty and availability of Cenvat Credit already paid
to the jurisdictional Commissioner. Also, the CCESC imposed penalties on the GCPL and its directors.
8. It is submitted on behalf of GCPL that the matter had to be entirely settled by the CCESC itself and the issue regarding the adjustment of the CVD
and the service tax component ought not to have been remanded to the jurisdictional Commissioner. It is contended that the CCESC wrongly applied
the decision of the Supreme Court in Osram Surya (P) Ltd. V Commissioner of Central Excise, Indore 2002 (142) ELT (SC. )According to GCPL, its
case is covered by the decision in Eicher Motors Ltd. v. Union of India 1999 (106) ELT 3 (SC.) It is further pointed out that the application of the
GCPL was in fact heard by a three member Bench of the CCESC, whereas the impugned order was signed by only two of them.
9. On the other hand, it is contended on behalf of the Department that the decision of the CCESC in BRCPLâ€s case was erroneous. It is pointed out
that BRCPL declared the wrong MRP at the time of import and therefore was deemed to be a manufacturer at the time of import. Consequently, an
SCN had to be issued for the differential duty i.e. CVD. In such a case, the question of allowing Cenvat Credit did not arise. It is further pointed out
by the Department that Notification No. 21/2014-CE(NT) dated 11th July, 2014, prescribed an upper time limit of six months/ one year for taking
Cenvat Credit.
10. Mr Harpreet Singh, learned Senior Standing Counsel appearing for the Department has also placed reliance on the decisions in CCE, Chennai-I v
Amalgamation Valeo Clutch Pvt. Ltd. 2006) (206) ELT 91 (Mad.) and Rathi Ispat Ltd. v CCE, Meerut 2010 (251) ELT 199 (All.).
11.1 The Court would first like to discuss the decision of the CCESC in the case of BRCPL which has been assailed by the Department in W.P.(C)
No.9152/2016. There BRCPL had imported ceramic tiles falling under the Third Schedule to the CE Act and had alleged to have altered the MRP by
reaffixing stickers, and this was deemed to be manufactured. This led to the issuance of SCN not only to BRCPL but certain other entities as well.
BRCPL voluntarily deposited Rs.13 lacs as Central Excise Duty during the course of investigation.
11.2 A SCN came to be issued proposing a demand of CE duty totalling Rs.3,04,73,655/-. BRCPL and the other entities applied to the CCESC for
settlement, accepting the duty liability of Rs.67,38,815/- and interest liability of Rs.30,48,639/- accepting that the change in MRP should be deemed to
be manufactured. BRCPL claimed that it had already deposited CED of Rs.67,40,000/- along with interest of Rs.30,50,000/-. It accordingly requested
for waiver of penalty and prosecution and allowing deduction of Cenvat Credit of CVD and settlement of demand on the differential duty.
11.3 Before the CCESC, the Department contended that under Rule 4 (1) of the Cenvat Credit Rules, 2004 (“CCRsâ€), a time limit of six months
from the date of issuance of the copy of the documents specified in Rule 9 (1) was imposed for claiming the Cenvat Credit with effect from 1st
September 2014. It was also contended that the applicant had withheld from the Central Excise Authority, information that it had changed the MRP
and cleared the final goods with an intention of evading payment of CE duty. It had not followed the proper procedure nor maintained the daily stock
account and as such was not eligible to avail the credit of CVD.
11.4 The CCESC took the view that it was a well settled principle that a substantive right cannot be denied because of procedural irregularities. The
fact that CVD had been paid at the time of the import, had not been denied by the Department. The law permitted the use of Cenvat Credit availed on
the CVD paid at the time of import in discharging CE duty liability. Since the change in the CCRs did not have retrospective effect, the availment of
Cenvat Credit as far as BRCPL is concerned, was not restricted to six months. Relying on the decision in the Osram Surya (P) Ltd. v. Commissioner
of Central Excise (supra), the CCESC held that the Cenvat Credit could not be denied to BRCPL.
11.5 Consequently, in the final order dated 16th December, 2015, the CCESC settled the differential duty and permitted Cenvat Credit adjustment of
the CVD amount paid. Likewise, the interest amount deposited by BRCPL was also allowed to be adjusted. A fine of Rs. 1 lac in lieu of redemption
of the goods was imposed for the goods seized from the applicant and a further penalty of Rs.1 lac was invoked as a condition for grant of immunity
from penalty in excess of the said amount.
12. When it came to GCPL, even though, the CCESC followed certain other decisions and declined to concur with the view taken by the CCESC in
BRCPL, although it noted that “In the instant case also the conditions are exactly the same as in the case of B.R. Ceramicsâ€. It was observed
that in view of the decision of the Supreme Court in Osram Surya (P) Ltd. v. Commissioner of Central Excise (supra), GCPL was not entitled to take
the Cenvat Credit and therefore it was left to the jurisdictional Commissioner to examine the claim for taking the Cenvat Credit. Unlike in the case of
BRCPL, a penalty of Rs.60 lacs was imposed and the CE duty was settled without giving credit of the CVD and interest payment.
13. In CCE, Chennai-I v. Amalgamation Valeo Clutch Pvt. Ltd. (supra), the Madras High Court followed Osram Surya (P) Ltd. v. Commissioner of
Central Excise, Indore (supra) to deny Cenvat Credit. A perusal of the said judgment shows that in paragraph 4, it was conceded by the counsel for
the Assessee that “the manufacturer cannot take the Modvat Credit after six months from the date of documents specified in First Proviso to Rule
57-G of the CE Rulesâ€. Therefore, the decision proceeded on a concession.
14. As far as the decision in Rathi Ispat Ltd. v CCE, Meerut (supra) is concerned, here the reliance is essentially placed on the decision in Osram
Surya (P) Ltd. v Commissioner of Central Excise, Indore (supra). None of these decisions are of help as far as the Department is concerned.
15. In the present case, we are concerned with the amendment to the Rule 4 of the CCRs with effect from 11th July, 2014, which reads thus:
“Provided also that the manufacturer or the provider of output services shall not take Cenvat credit after 6 months of the date of issue of any of
the documents in sub rule (1) of rule 9.
16. It is in terms of this amendment that it was provided that the Cenvat Credit must be taken within one year of the issue of invoice for input goods or
input services.
17. There is substance in the contention of the learned counsel for the Assesses in both the cases that the above amended provision cannot be given
retrospective effect. As explained in Eicher Motors Ltd. v. Union of India (supra) the rule of lapse of credit lying with it unutilized on the date of
amendment, cannot be applied to the goods manufactured prior to the date of the amendment. This is based on the principle that the right to
adjustment of tax on final products accrues to an Assessee on the date when they paid the tax on the raw materials and that right would continue until
the facility available thereto gets worked out. In fact, the judgment in Osram Surya (P) Ltd. v. Commissioner of Central Excise, Indore (supra)
approvingly refers to the judgment in Eicher Motors Ltd. v. Union of India (supra).
18. In the present case, the credit accrued when CVD was paid on finished goods deemed to be cleared from home consumption when the dealers
sold the goods at higher price by altering the MRP. The right to the Cenvat Credit accrued on the very day when the inputs were received.
19. In Jayam & Co. v Assistant Commissioner (2016) 96 VST 1 (SC), it was held that a provision introduced for the first time cannot be given
retrospective effect. It is further held as under:
“11. Now it is a well-settled rule of interpretation hallowed by time and sanctified by judicial decisions that, unless the terms of a statute expressly
so provide or necessarily require it, retrospective operation should not be given to a statute so as to take away or impair an existing right or create a
new obligation or impose a new liability otherwise than as regards matters of procedure. The general rule as stated by Halsbury in Volume 36 of the
Laws of England (Third Edition) and reiterated in several decisions of this court as well as English Courts is thatâ€
“all statutes other than those which are merely declaratory or which relate only to matters of procedure or of evidence are prima facie prospective
and retrospective operation should not be given to a statute so as to affect, alter or destroy an existing right or create a new liability or obligation unless
that effect cannot be avoided without doing violence to the language of the enactment. If the enactment is expressed in language which is fairly
capable of either interpretation, it ought to be construed as prospective only'.
20. Likewise in Samtel India Ltd. v. CCE, Jaipur 2003 155 ELT 14 (SC), it was held that the right to credit accrued to an Assessee on the date the tax
on inputs was paid. Once the inputs were used, the Rule imposing a period of limitation, could not be given retrospective effect.
21. The Gujarat High Court in Filco Trade Centre Pvt. Ltd. v. Union of India (decision dated 5th September, 2018 in SCA No.18433/2017) followed
the dictum of the Supreme Court in Jayam & Co. v. Assistant Commissioner (supra) and reiterated that the input tax credit could not be denied on the
basis of an amendment, which is prospective. The question dealt with by the High Court was whether Section 140-A (3) (iv) of the CGST Act, which
declined the Cenvat Credit in relation to goods purchased prior to one year from the appointed date, could be given retrospective effect. In answering
the question in the negative, the Gujarat High Court held as under:
“30. To sum up we are of the opinion that the benefit of credit of eligible duties on the purchases made by the first stage dealer as per the then
existing CENVAT credit rules was a vested right. By virtue of clause (iv) of sub-section (3) of section 140A such right has been taken away with
retrospective effect in relation to goods which were purchased prior to one year from the appointed day. This retrospectivity given to the provision has
no rational or reasonable basis for imposition of the condition. The reasons cited in limiting the exercise of rights have no co-relation with the advent of
GST regime. Same factors, parameters and considerations of ""in order to co-relate the goods or administrative convenience"" prevailed even under the
Central Excise Act and the CENVAT Credit Rules when no such restriction was imposed on enjoyment of CENVAT credit in relation to goods
purchased prior to one year.
22. Consequently, in the present case, the Court is satisfied that the Amendment to Rule 4 (1) CCRs prescribing a time limit for claiming Cenvat
Credit will not apply to the consignments in the present case where the import took place prior to the date of the amendment and the deemed
manufacture took place when the MRP was altered, which also happened prior to the amendment. In other words, the CVD paid by the BRCPL will
have to be permitted to be adjusted against the CE duty settled as will the service tax paid on the input services.
23. That apart, it is indeed true that the CCESC which heard the settlement application of the GCPL comprised of three members. Therefore, an
order passed by just two of them, would obviously be unsustainable in law.
24. For all of the aforementioned reasons, this Court sets aside the impugned order dated 23rd June, 2016 passed by the CCESC in the case of GCPL
and permits the adjustment of the CVD in the sum of Rs.2,80,42,411.00 and service tax to the tune of Rs. 16,51,695.00 against the admitted settled
duty liability of Rs.3,69, 76,139.00. Further, the penalty amount of Rs.60 lacs is reduced to Rs. 1 lac, as in the case of BRCPL. W.P.(C)
No.6706/2016 is disposed of in the above terms.
25. As far as the Departmentâ€s challenge to the decision of the CCESC in the case of the BRCPL is concerned, it is hereby rejected and the W.P.
(C) No.9152/2016 is dismissed. No costs.
