Suvendu Kumar Pati ORDER
Dr. Suvendu Kumar Pati, Member (J)
1. Availment of cenvat credit on Education Cess & Secondary and Higher Secondary Education Cess against purchase of inputs for manufacture from 100% EOU for manufacturing was held inadmissible by the Commissioner (Appeals) that resulted in confirmation of duty demand along with interest and equivalent penalty against the appellant which is being assailed in this appeal.
2. The brief facts of the case is that appellant manufactures bright bar of stainless steel, and mild steel and mild steel wire. It has registered under the Central Excise Act. It availed cenvat credit on inputs for such manufacturing. During investigation made in January 2013, after intelligence gathered by the excise department, appellant was informed that as per provision of Rule 3(1) of Cenvat Credit Rules 2004 credit on Education Cess & Secondary and Higher Secondary Education Cess were not admissible and the appellant should reverse the same. Appellant did the reversal promptly and debited cenvat credit account for ` 15,31,045/- on 23.01.2013 but it was put to show-cause for such availment of allegedly inadmissible credit. The matter was adjudicated upon that resulted in the confirmation of demand under Rule 14 of the Cenvat Credit Rules to the tune of ` 15,31,045/- along with applicable interest at the appropriate rate and penalty of equivalent amount as well as penalty of ` 1,50,000/- on the Director of the appellant Mr. Vinod Kumar Modi by the adjudicating authority i.e. Additional Commissioner, Central Excise, Customs & Central Tax, Nashik II vide his order dated 31.12.2015. Appellant preferred appeal against such finding of the adjudicating authority that was dismissed in respect of appellant company but allowed in respect of the Director absolving the penalty imposed on him. The present appeal is preferred by the appellant challenging part rejection of its appeal in respect of duty demand interest and penalty on the appellant company
3. In his memo of appeal and during course of hearing of the appeal, learned counsel for the appellant submitted that appellant had been availing credit as audit conducted twice found no irregularity in such availment but it had accepted its mistake in availing cenvat credit on Education Cess & Secondary and Higher Secondary Education Cess during the period between February 2011 and March 2011 and reversed the same immediately after it was brought to its knowledge by the excise official and such credit was only taken in its account but never utilised. In citing Larger Bench decision of this Tribunal in the case of JK Tyres & Inds. reported in MANU/CB/0152/2016 : 2016 (340) ELT 193 (Tri-LB) he also pointed out that the issue had attained finality that merely by availing credit which was reversed before utilisation against remittance of duty, interest liability would not arise. He further argued with reference to several judicial pronouncement reported in MANU/KA/0787/2012 : 2012 (281) ELT 192 (Kar.), 2012 (28) STR 214 (Kar.), MANU/TN/3137/2014 : 2014 (310) ELT 509 (Mad.) and in the case of Commissioner of Central Excise, Madurai vs. Strategic Engineering MANU/TN/3137/2014 : 2014 (310) ELT 509 (Mad) that the position of law has become quite clear that mere taking of cenvat credit itself would not compel the assessee to pay interest as well as penalty and consequently the respondent's stand for recovery of interest and imposition of penalty under Rule 14 and 15 respectively of Cenvat Credit Rules cannot succeed for which he prayed for setting aside the order of the Commissioner (Appeals).
4. In response to such submissions, learned AR Shri M.R. Melvin for the respondent department supported the reasoning and rationality of the order passed by the Commissioner (Appeals) who referred to the decision of the Hon'ble Supreme Court held in Ind-Swift Lab reported in MANU/SC/0140/2011 : 2011 (265) ELT 3 (SC). In citing decision of this Tribunal reported in 2018-TIOL-1034-CESTAT-MUM in the case of JSW Jaigarh Port, learned AR also submitted that after analysing the judgment in Ind-Swift Lab and Bilforge cited supra though penalty was waived off, interest liability was upheld. Referring to the factual aspect of the case that such wrong availment of cenvat credit was noticed after gathering intelligence information, Learned AR submitted that had the same not been noticed, on the strength of intelligence report appellant would have continued to avail the inadmissibility credit for which interference in the order of the Commissioner (Appeals) is uncalled for.
5. Heard from both sides at length, perused the case records, relied upon decisions, relevant provision of law and also written submissions of the appellant. Going by the show-cause notice and the adjudication order, it is very much clear that customs duty, as per customs tariff act were paid by the appellant in accordance to Section 3 of Central Excise Act 1994 as input material were brought by the appellant from 100% EOU to its manufacturing unit located in India and Education Cess & Secondary and Higher Secondary Education Cess were duly paid by it. However, as rule 3(1) of the Cenvat Credit Rules 2004 has not attached availment of such cenvat credit against additional duty leviable under sub-section (5) of section 3 of the Customs Tariff Act and Section 3 of the Customs Tariff Act does not specifically say about availment of cenvat credit against the cess paid on Education & Secondary and Higher Secondary Education, apparently under the belief that such availment of credit on those two cess is inadmissible and it was asked to reverse the same. It was also put to notice and subsequent adjudication had taken place. But going by the Rule 3(1) of Cenvat Credit Rules 2004 sub-clause (vii) it is very much clear that all those duties of excise specified under clause 1, 2, 3, 4, 5, 6 and 6A, against which availment of cenvat credit is permissible, are equally applicable to additional duty leviable under section 3 of Customs Tariff Act. So there is no doubt that Education Cess & Secondary and Higher Secondary Education Cess paid against additional duty leviable under section 3 of Customs Tariff Act are covered under cenvat credit permitted to be taken under Rule 3(1) of Cenvat Credit Rules 2004. Further, in respect of additional duty leviable under sub-section (5) of Section 3 of the Customs Tariff Act, nothing has been mentioned in Rule 3(1) of Cenvat Credit Rules 2004 that Education Cess & Secondary and Higher Secondary Education Cess paid on those duty is also included for availment of credits by the manufacturer.
6. Going by Section 126 and 129 of the Finance Act it is very much clear that Secondary and Higher Secondary Education Cess levied under section 126 is not to be levied on the additional duty referred in sub-section (5) of Section 3 of the Customs Tariff Act. Therefore the sample copy of invoice, which is imprinted on the show-cause notice, though reveals payment of additional duty of excise under sub-Rule (5) of Rule 3 was paid by the appellant under erroneous interpretation of law and the same though taken as a credit should have been refunded back again under proper application. More importantly the other customs duty paid as additional duty of excise (CVD) under section 3 of the Customs Tariff Act is included in the provision containing availment of cenvat credit in Rule (1) (vii) of Cenvat Credit Rules 2004 to be availed like other excise duties including Education Cess & Secondary and Higher Secondary Education Cess. In other words, only education cess paid under sub-section (5) is outside the purview of Cenvat Credit Rules and Secondary & Higher Education cess and are not attached to additional duty referred in sub-section (5) of Section 3 of the Customs Tariff Act.
7. In respect of taking of cenvat credit and its utilization the learned counsel for the appellant had submitted relied upon the larger bench decision of J.K. Tyre, cited supra in which mere taking of credit is differentiated from its utilisation. Therefore, mere taking of cenvat credit in the book of account would not entail interest and penalty unless the same is drawn from the account of the government by way of refund or utilisation against duty dues. Moreover having regard to the fact that even the intelligence wing officials of the Excise department, who conducted investigation are unaware that higher education cess is not to be attached to sub-rule (5) of Rule 3 of Customs Tariff Rules, and issued show-cause to the appellant, the same itself is sufficient indication that even experts in the field of taxation also misinterpreted the provisions due to inadequate understanding. So the case of the appellant can be considered as a bonafide dispute of legal interpretation of the provision inasmuch as it has reflected the credit in its cenvat credit account without utilisation that would never justify invocation of extended period. Hence the order.
8. The appeal is allowed and the order passed by the Commissioner of Central Excise & GST (A) in appeal No. NSK/EXCUS/000/APPL/126-127/17-18 dated 15.01.2018, Nashik is hereby set aside.
(Pronounced in Court on 23.01.2019.)
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