SUN PHARMACEUTICALS INDUSTRIES LTD. Vs. CCE

JUDGEMENT

(1.) M /s. Sun Pharmaceuticals Industries Ltd. (herein after referred to as Sun), Kancheepuram, are engaged in the manufacture of pharmaceutical products and bulk drugs falling under Chapter 29 of the Central Excise Tariff Act. They availed the cenvat scheme in respect of inputs, packing materials etc. On 22.04.2004, Sun was converted into a 100% Export Oriented Unit (EOU). Following a visit to the EOU, the officers of the department noticed that the EOU had received the entire balance of stock of inputs with Sun, at the time of its conversion to EOU without payment of duty equal to the credit availed at the time of receipt of the inputs. Rule 3(1) of the Cenvat Credit Rules, 2002 (CCR) permitted a manufacturer to take cenvat credit of the duty of excise paid on the inputs or capital goods received by him for use in or in relation to the manufacture of final products. Rule 3(4) of CCR provided that the manufacturer shall pay an amount equal to the credit availed in respect of such inputs or capital goods when removed as such from the factory of manufacture. By transferring the stock of inputs, Sun had contravened the provisions of Rule 3(1) and 3(4) of CCR. By removing the inputs without raising invoices it had contravened the provisions of Rule 11 of Central Excise Rules, 2002 (CER). A Show Cause Notice was issued to demand an amount of Rs. 27,94,664/ - being the cenvat credit pertaining to inputs transferred to the EOU, along with interest, under Rule 12 of CCR read with Section 11A and Section 11AB of the Central Excise Act, 1944 (the Act). It was also proposed to penalize Sun under Rule 13 of CCR and Rule 25 of CER.

(2.) Adjudicating the show cause notice, the original authority found that Rule 17 of CER laid down that when excisable goods were removed to domestic tariff area from a 100% EOU, such removal shall be made under an invoice specified in Rule 11 of CER and on payment of appropriate duty by debiting the account current. This Rule was amended with effect from 6.9.04, permitting the EOUs to remove excisable goods to DTA also by using cenvat credit. Cenvat credit lying unutilized could not be carried over by a DTA unit when it got converted into an EOU earlier to 6.9.04. As per the CBEC Circular No. dated 18.11.99, the cenvat credit lying unutilized with a DTA would lapse on its conversion into an EOU. Accordingly, he demanded an amount of Rs. 27,67,318/ - being credit balance lying with the DTA on 22.04.04 along with applicable interest under Rule 12 of CCR read with Section 11AB of the Act. He imposed a penalty of Rs. five lakhs on Sun under Rule 13 of CCR and another penalty of Rs. 25,000/ - under Rule 25 of CER.

(3.) In the appeal before the Tribunal, Sun has challenged the impugned order on the grounds that CBEC Circular No. -Cus dated 18.11.99, was no longer applicable when the erstwhile Central Excise Rules '44 were rescinded; Rule 100H of CER'44 which made Rule 57A to 57U inapplicable to a 100% EOU was not on the statute. CER in force during the material period did not contain any rule which barred entitlement of an EOU to cenvat credit. Therefore, order for recovery of the cenvat credit balance was not in accordance with law. Sun had been paying excise duty prior to the date of conversion and they were entitled to cenvat credit. They continued to manufacture excisable goods liable to pay excise duty after conversion into an EOU and they were eligible to take cenvat credit. The unutilized credit balance did not need to lapse. The Commissioner (A) had erred in finding that an EOU was entitled to cenvat credit only with effect from 6.9.04. As the appellants had not availed wrong credit or excess credit nor there was any violation of law, no penalty could be imposed.