The CESTAT Chandigarh held that CENVAT credit on inputs procured from units enjoying exemption under Notification No.01/2010-CE cannot be denied merely because the credit was claimed before the amendment of Rule 12 of the Central Excise and Service Tax Rules, 2004, and also rejected the revenue’s attempt to invoke the extended period of limitation.
Background & Facts
The Dispute
The appellant, M/s Reckitt Benckiser India Ltd., purchased duty-paid inputs from manufacturers that were availing exemption under Notification No.01/2010-CE dated 06.02.2010. The revenue argued that CENVAT credit on such inputs could be claimed only after the amendment introduced by Notification No.02/2014-CE (NT) dated 20.01.2014, effective from the same date. The appellant contended that the credit was permissible under the existing provisions of Rules 3 and 4 of the Central Excise and Service Tax Rules, 2004 (CCR), and that Rule 12 contains a non-obstante clause which prevents any conflict-based denial.
Key Facts
- Notification No.01/2010-CE dated 06.02.2010 granted exemption to certain manufacturers.
- Amendment Notification No.02/2014-CE (NT) dated 20.01.2014, w.e.f. 20.01.2014, amended Rule 12 of the CCR.
- The revenue issued a show-cause notice on 16.10.2017 demanding CENVAT credit of Rs 79,49,359 under Rule 14 of the CCR, 2004, together with a penalty.
- An OIO dated 28.03.2018 confirmed the credit demand.
- The impugned order denying the credit was dated 15.01.2018.
- Audit reports were issued for the periods 12.04.2016 and 01.04.2014 to 09.02.2015.
- The department also processed several refund orders during the relevant period.
- The show-cause notice covered the period 01.08.2009 to 19.01.2014, invoking the extended period of limitation.
Procedural History
- 15.01.2018: Impugned order denying CENVAT credit.
- 16.10.2017: Show-cause notice demanding credit and penalty.
- 28.03.2018: OIO confirming the demand.
- 03.07.2026: Hearing of Excise Appeal No. 60153 of 2020 before the CESTAT.
- 03.08.2026: Final order allowing the appeal.
Parties’ Positions
- Appellant: Argues that Rules 3 and 4, together with the non-obstante clause in Rule 12, permit credit; the amendment is merely clarificatory and retrospective; extended limitation cannot be invoked.
- Respondent: Maintains that credit is admissible only after the Rule 12 amendment; relies on Union Quality Plastic Ltd. (2013) for extended period; contends that the appellant suppressed facts to evade duty.
Relief Sought
The appellant sought declaration that the CENVAT credit claimed on the inputs is admissible for the period before 20.01.2014, and that the revenue’s reliance on the extended period of limitation be rejected.
The Legal Issue
The central question was whether CENVAT credit on inputs procured from units availing exemption under Notification No.01/2010-CE could be claimed for the period preceding the amendment of Rule 12 of the Central Excise and Service Tax Rules, 2004 (effective 20 January 2014), and whether the revenue could invoke the extended period of limitation to deny such credit.
Arguments Presented
For the Appellant
- The appellant relied on Rules 3 and 4 of the CCR, which allow credit when duty has been paid and the input is used in manufacture.
- It submitted that Rule 12 begins with a non-obstante clause, meaning that in case of any conflict, Rule 12 prevails, but there is no conflict with Rules 3 and 4; therefore credit cannot be denied.
- Cited Dharampal Satyapal Ltd. (2017) stating that Rule 12 does not restrict credit under Rule 3.
- Asserted that Notification No.02/2014-CE is a clarification, applicable retrospectively, and cannot be used to deny credit already earned.
- Contended that the extended period of limitation is inapplicable because the issue arose from an audit and involves statutory interpretation, not suppression of facts.
- Relied on recent decisions: Intex Technologies India Pvt. Ltd. (2024), HPM Chemicals Fertilizers Ltd. (2024), Sunshine Steel Industries (2023).
For the Respondent
- The revenue argued that before the amendment, there was no express provision permitting credit on inputs from exempt manufacturers; therefore, credit should be denied for the pre-amendment period.
- Relied on Union Quality Plastic Ltd. (2013) to support the view that the amendment introduced a new right.
- Asserted that the appellant had suppressed facts to evade duty, justifying invocation of the extended period of limitation.
- Maintained that the extended period is a statutory safeguard to recover undisclosed liabilities.
The Court's Analysis
The Tribunal began by interpreting the scheme of CENVAT credit holistically. It observed that Rule 3 of the CCR, 2004, provides credit to a manufacturer or service provider when (i) the input or capital good has suffered duty and (ii) it is used in the manufacture of final products. The Tribunal held that these conditions were satisfied in the present case.
"The scheme of CENVAT credit has to be read in a harmonious manner and not in isolation with reference to one or two Rules."
The Tribunal noted that before the amendment, there was no express prohibition in the Rules to deny credit on inputs from exempt units. The presence of a non-obstante clause in Rule 12 does not create a negative restriction; rather, it ensures that Rule 12 prevails over any inconsistent provision, which was not the case here. Consequently, the credit could not be denied merely because the amendment later clarified the position.
Regarding the extended period of limitation, the Tribunal emphasized that the issue arose from an audit and involved interpretation of statutory provisions. It reiterated established jurisprudence that when a dispute is initiated on the basis of an audit, the extended period is not invocable. Moreover, the revenue failed to produce any evidence of intentional suppression or evasion by the appellant. The Tribunal relied on Sunshine Steel Industries (2023) to affirm this principle.
In sum, the Tribunal found no statutory basis to deny the credit and rejected the revenue’s contention that the extended period could be invoked.
The Verdict
The appeal was allowed in its entirety. The Tribunal held that the appellant is entitled to the CENVAT credit on inputs procured from units availing exemption under Notification No.01/2010-CE for the period before 20 January 2014, and that the revenue’s reliance on the extended period of limitation is rejected. No penalty was imposed; the credit of Rs 79,49,359 remains available to the appellant.
What This Means For Similar Cases
Harmonious Interpretation of CENVAT Rules
- Practitioners must read Rules 3, 4 and 12 together; an absence of an express prohibition before an amendment does not preclude credit.
- Reliance on the non-obstante clause should be to protect credit, not to create new restrictions.
Retrospective Effect of Clarificatory Amendments
- Amendments that merely clarify existing provisions, such as Notification No.02/2014-CE, can be applied retrospectively where the underlying conditions are satisfied.
- Counsel should argue that the amendment does not create a new right but confirms an existing one.
Limitation - Extended Period Not Invocable in Audit-Based Disputes
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When the revenue initiates action based on an audit, the extended period of limitation cannot be invoked, even if the audit covers a long span.
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Parties should focus on the lack of evidence of suppression rather than on the length of the audit period.
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Actionable Takeaways:
- Verify that duty has been paid and inputs are used in production before claiming credit.
- Cite Dharampal Satyapal Ltd. and Sunshine Steel Industries for harmonious reading and limitation arguments.
- Prepare audit-related defenses emphasizing statutory interpretation rather than alleged concealment.
