CESTAT Chandigarh Allows CENVAT Credit for Reckitt Benckiser on Inputs Procured from Tax Exempt Units

In a significant ruling for manufacturers operating in industrial growth centers, the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) at Chandigarh has ruled in favor of Reckitt Benckiser India Ltd., setting aside a demand for ₹79,49,359 in CENVAT credit. The bench, led by Member (Judicial) S.S. Garg and Member (Technical) P. Anjani Kumar, concluded that there was no legal prohibition against claiming credit on inputs sourced from tax-exempt units prior to the 2014 amendment of Rule 12 of the CENVAT Credit Rules (CCR), 2004.

The Genesis of the Dispute

The conflict arose when the Revenue department challenged the appellant’s practice of procuring duty-paid inputs from manufacturers benefiting from the exemption under Notification No. 01/2010-CE. The tax authorities contended that before the amendment introduced by Notification No. 02/2014-CE (NT), effective January 20, 2014, such credit was inadmissible. Consequently, a show-cause notice was issued in October 2017, demanding the recovery of credit along with interest and penalties.

Conflicting Interpretations

During proceedings, the appellant argued that Rules 3 and 4 of the CCR 2004 established their fundamental right to claim credit once the duty-paid nature of inputs was proven. Counsel for the appellant asserted that Rule 12 did not impose a restriction on this entitlement and that the 2014 amendment was merely clarificatory in nature.

Conversely, the Revenue department relied on the strict interpretation of the pre-amendment regulatory framework, arguing that the legislative intent was to allow such credits only after the formal incorporation of the provision in 2014.

Harmonious Interpretation of the CCR 2004

The Tribunal emphasized the need for a "harmonious" reading of the CENVAT credit scheme. The bench noted that the scheme requires the input to have suffered duty, be used in manufacturing, and be backed by appropriate documentation. Since these conditions were met by the appellant, the absence of an explicit provision before 2014 could not, by itself, negate the eligibility for credit.

Key Observations

The judgment highlighted several critical points regarding the scope of Rule 12 and the limitations of the Revenue’s recovery efforts:

  • "The scheme of CENVAT credit has to be read in a harmonious manner and not in isolation with reference to one or two Rules."
  • "Before the amendment there was no express prohibition in the CENVAT Credit Rules so as to deny such credit availed by the appellant."
  • "We find that the question is not about the knowledge of the Department about the suppression rather it is whether there was suppression of fact etc. with intent to evade payment of duty ."
  • "We find that the appellants succeed both on merits and limitation."

A Final Verdict on Limitation

Beyond the merits of the case, the Tribunal also addressed the issue of the extended period of limitation. The bench held that the Revenue failed to prove any intent to evade duty, especially given that the company had undergone regular audits and maintained transparent records. Furthermore, the court observed that where an issue revolves around the interpretation of statutes, the extended period of limitation cannot be invoked.

By allowing the appeal, the CESTAT has provided much-needed clarity for the manufacturing sector, reinforcing that statutory benefits should not be denied due to the retrospective application of restrictive interpretations where no explicit prohibition existed in the initial legislation.