Abdul Rehim, J.
1. The common appellant in both these cases is challenging a common order of the Customs, Central Excise and Service Tax Appellate Tribunal, South Zonal Bench, Bangalore, in Appeal Nos.E/20148/2016-SM and E/20149/2016-SM, dated 26-10-2017, in appeals instituted under Section 35 G of the Central Excise Act, 1944.
2. The Commissioner of Central Excise, Cochin through a common order passed on 30-01-2012 held that, the appellant had taken ineligible credit and utilized the amount to the tune of Rs.36,38,579/- and Rs.20,93,732/- on the inputs cleared as such; and that they are liable to reverse the credit availed along with interest and penalty of an equal amount. The appellant filed appeals before the Commissioner of Central Excise and Service Tax (Appeals), Cochin against the order mentioned above, in Appeal No.COC-EXCUS - 000 - APP – 140 & 141 - 15-16. The Commissioner (Appeals) had confirmed the demand issued by the lower authority by holding that the same is perfectly in order. Aggrieved by the order of the Commissioner (Appeals) the appellant had approached the Appellate Tribunal. Through the order impugned herein, the Appellate Tribunal had dismissed the appeals and confirmed the orders of the lower authorities. It is under such circumstances the above appeals are filed.
3. On the basis of the ple
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adings and arguments raised, a substantial question of law was formulated as to whether the appellant is liable to reverse the CENVAT credit availed with respect to the inputs removed as such to a unit situated in the Special Economic Zone (SEZ) by using Form No.ARE-I, under Rule 3 (5) of the CENVAT Credit Rules, 2004.
4. Brief facts are as follows. The appellant imported inputs for usage in the process of manufacturing, by availing exemption from payment of customs duty, as provided under the Customs (Import of Goods on Concessional Rate of Duty for Manufacture of Exciseable Goods) Rules, 1996 and in terms of Notification No.25/2005 – CUS issued under the Customs Act. As the appellant was unable to use the inputs for manufacture, allegedly due to the lack in their production capacity, the inputs as such was removed to an industrial unit situated in the SEZ, for use in the manufacture of finished products, under the cover of ARE-1, after paying the customs duty which was waived at the time of the import; and by availing credit of the 'Counter Vailing Duty' (CVD). The assessing authority issued show cause notice demanding reversal of the credit availed, by relying on Rule 3 (5) of the CENVAT Credit Rules, 2004. Despite the objections submitted by the appellant, the authority confirmed the proposal and demanded payment of the credit availed, along with interest, and penalty to the tune of an equivalent amount. Whether the demand is sustainable or not is the question to be decided ?
5. Adv. G. Sivadas, learned Senior Counsel appearing for the appellant contended that, provisions contained in Rule 3 (5) of the CENVAT Credit Rules, which insists upon payment of an amount equal to the credit availed with respect to the inputs removed as such from the factory of the appellant, cannot be applied with respect to removal of inputs to a unit situated in the SEZ. Under Section 2 (m) of the Special Economic Zones Act, 2005 supply of any goods from a Domestic Tariff Area (DTA) to a unit in SEZ will amount to an 'export', which is exempted from payment of the duty of excise as provided under Section 26 (c) of the Special Economic Zones Act, 2005. It is further pointed out that, Rule 6 of the CENVAT Credit Rules, which prohibits allowance of CENVAT Credit in the circumstances mentioned under sub-rule (2) thereof, will not apply in the case of the appellant, because of the specific exemption provided under subrule (6) of Rule 6. Argument of the learned Senior Counsel is also based on the provisions contained in Section 51 of the Special Economic Zones Act, which provides that the said Act shall be having an overriding effect on any other law for the time being in force, notwithstanding any inconsistencies contained therein. Hence it is contended that, the inputs transferred to the unit in SEZ will not disentitle the appellant from availing the CENVAT Credit and therefore the demand for reversal of the credit is unsustainable. Learned Senior Counsel had also relied on two circulars issued by the Board of Excise and Customs clarifying the position, i.e., Circular No.29/D6-CVS dated 27-12- 2006 and No.1001/8/2015-CX.8 dated 28-04-2015.
6. Contentions of the Senior Counsel were controverted by Adv. Thomas Mathew Nellimoottil, Senior Standing Counsel for Central Board of Indirect Taxes. According to him, the liability under Rule 3 (5) of the CENVAT Credit Rules for payment of an equal amount of credit availed, is mandatory in a case where the inputs are removed as such from the premises of the appellant. It is contended that the exemption provided under Rule 6 (6) of the CENVAT Credit Rules will not apply with respect to the inputs removed as such, without manufacturing any products. It is also contended that, the exemption contained in Rule 6 (6) will apply only with respect to finished products, for which the excise duty is payable, in the manufacture of which the inputs are used. It is further contended that the exemption provided under the Special Economic Zones Act, 2005 (SEZ Act, for short) with respect to payment of duty of excise would apply only with respect to manufactured goods supplied from DTA to a unit in the SEZ. Learned Counsel also contended that, if the allowance of credit is permitted in the case of inputs transferred as such, without using it for manufacture, it will amount to allowing double benefits to the appellant.
7. For a better appreciation of the rival contentions it is necessary to have a scanning of the relevant provisions in the relevant statutes. Rule 3 (5) of the CENVAT Credit Rules 2004 provides that, when the inputs on which CENVAT Credit has been taken are removed as such from the factory, the manufacturer of the final product shall pay an amount equal to the credit availed in respect of such inputs and such removal shall be made under the cover of an invoice referred to in rule 9. In the case at hand, it is not in dispute that the inputs were removed as such from the factory of the appellant. It is also not in dispute that the inputs were removed to a unit situated in the SEZ. The term 'export' is defined under Section 2(m) of the SEZ Act which includes supply of goods from the Domestic Tariff Area (DTA) to a unit in the SEZ.
8. Section 26 of the SEZ Act provides about the exemptions, drawbacks and concessions to an entrepreneur within the SEZ. Under Section 26 (1) (c) the exemptions includes, any duty of excise under the Central Excise Act or any other law for the time being in force, on the goods brought from DTA to a unit in the SEZ, to carry on any authorized operations at such unit. Therefore it is evident that any goods brought from the DTA to a unit in the SEZ for carrying on any authorized operations by usage of such goods, is exempted from payment of the excise duty. Further, Section 51 of the SEZ Act provides that, provisions of the said Act shall have an overriding effect notwithstanding anything inconsistent contained in any other law for the time being in force or in any instrument having effect by virtue of any law other than the said Act. Based on the above provisions, Senior Counsel for the appellant pointed out that, the CENVAT Credit Rules provides a situation wherein the credit of the duty availed on inputs could be utilized for payment of duty due on the manufactured goods. But, when the importer is not using the inputs in the process of manufacture of dutiable goods or in a case in which the inputs are used in the manufacture of exempted goods, the manufacturer is required to reverse the credit of the duty availed on the inputs. Such a situation is governed by Rule 3 (5) and Rule 6 (1) of the CENVAT Credit Rules. But, Rule 6 (6) is an exemption wherein the manufacturer who on exporting goods to a unit in SEZ is allowed to have credit on the duty paid on inputs, despite the liability cast upon the manufacturer for utilizing the inputs for manufacturing finished goods. It is contended that, such a provision is incorporated with a specific intention to exempt from imposition of export duties and taxes already suffered by the manufactured goods or the inputs used in the manufacture of such goods. It is pointed out that, Rule 6 (6) (i) provides that the provisions of sub-rule (1) of Rule 6 shall not apply in cases where the excisable goods are removed without payment of duty to a unit in the SEZ. Rule 6 (6) (v) provides that provisions of sub-section (1) shall not apply in cases where the excisable goods are cleared for export under bond in terms of provisions of the Central Excise Rules. It is pertinent to note that Rule 30 of the SEZ Rules provides the procedure for procurement of goods from DTA. It specifies that in a supply from a DTA to a unit in the SEZ, the unit shall clear the goods, as in the case of exports, either under bond or as duty paid goods under claim of rebate, on the cover of ARE-1 Form. It is not in dispute that the inputs in this case were removed from the factory of the appellant to a unit in the SEZ under the cover of ARE-I Form and therefore the appellant is entitled to the exemption permitting retention of the credit availed on the duty paid on inputs. In terms of Rule 6(6) of CENVAT Credit Rules it is contended that, the liability for reversal of the credit, envisaged under Rule 3(5) of the CENVAT Credit Rules, will not apply in this case because the inputs have been cleared to a unit in the SEZ through the bond executed. Therefore the demand for reversal cannot be sustained, is the contention.
9. In this regard, Circulars issued by the Central Board of Excise & Customs assumes importance. In Circular No.29/D6- CVS, dated 27.12.2006, which pertains to implementation of the SEZ Act, 2005, it is provided that, in the light of provisions contained under Section 2(m) and 51 of the Act, the supplies from DTA to a unit in the SEZ for authorized operations inside the SEZ, may be treated as in the nature of exports. The procedure to be followed with respect to the clearance of goods in such cases are enumerated under the said Circular. In the subsequent circular of the Central Board of Excise and Customs, Circular No.1001/8/2015 – CX.8, dated 28-04-2015, it is specified that the supply of goods from DTA to the SEZ constitutes export and under Section 51 of the SEZ Act the provisions of the said Act shall have overriding effect over provisions of any other law, in case of any inconsistency. It is mentioned that the provisions under Rule 30 (1) of the SEZ Rules was framed in line with those provisions and it provides that a DTA supplier supplying goods to the SEZ shall clear the goods either under bond or as duty paid goods under the claim of rebate on the cover of ARE-1. It is further clarified that, since the SEZ is deemed to be outside the customs territory of India, any licit clearance of goods to the SEZ from DTA will continue to be export and therefore be entitled to the benefit of rebate under Rule 18 of Central Excise Rules and for refund of the accumulated CENVAT Credit under Rule 5 of the CENVAT Credit Rules, 2004.
10. In the case at hand, since there is no dispute that the inputs were removed as such to a unit in the SEZ under cover of ARE-1, the above said provisions will apply and the appellant has to be exempted from reversal of credit availed on the duty paid on inputs.
11. Learned Standing Counsel appearing for the respondents contended that, the eligibility of a manufacturer for CENVAT Credit is governed by provisions of CENVAT Credit Rules, 2004 and unless the said Rules specifically exclude operation of Rule 3 (5), the appellant cannot claim retention of the credit availed. Since the inputs were not used for manufacture, it is contended that, the appellant cannot be allowed to enjoy double benefit by retaining the CENVAT Credit taken on inputs, when the inputs as such was removed to a unit in the Special Economic Zone. It is further contended that the exemption under Rule 6 (6) can be made applicable only in a case where the manufactured goods, which are liable for payment of excise duty, is transferred to a unit in the SEZ.
12. On an active consideration, we take note of the definition of 'export' provided under the SEZ Act and also the exemptions provided therein under Section 26 (c). Since the legislature had intentionally included Section 51 to give an overriding effect to the SEZ Act, wherever it is inconsistent with any other law for the time being in force, the exemptions provided under Section 26 (3) cannot be denied to a transfer of inputs in the DTA to a unit in the SEZ. We are of the considered opinion that the position remains clarified through the circular issued by the Central Board of Excise and Customs (Circular No.1001/8/2015-CX.8, dated 28-04-2015). Hence we are convinced that the appellant need to be held as entitled for the CENVAT Credit and the demand for reversal of the credit availed along with interest and penalty, with respect to the inputs removed as such to a unit situated in the Special Economic Zone, cannot be sustained.
13. Hence the question of law framed is found in favour of the appellant and against the revenue. Consequently the appeals are allowed and the impugned orders of the Appellate Tribunal is hereby set aside