2026-VIL-1581-CESTAT-CHE-CE
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CENTRAL EXCISE CESTAT Cases

Central Excise – CENVAT Credit – Countervailing Duty on Capital Goods Imported by Separate Entity – Appellant, engaged in manufacture of cement, availed CENVAT credit of Countervailing Duty paid on capital goods imported by M/s Coromandel Electric Company Ltd., a separately incorporated Special Purpose Vehicle established for captive power generation. The appellant subsequently acquired majority shareholding in the Special Purpose Vehicle and the electricity generated was exclusively used in manufacture of dutiable cement products by the appellant. The Department disallowed the credit on the ground that the capital goods were imported by a separate legal entity distinct from the appellant – Whether the appellant was entitled to avail CENVAT credit on duty paid by another independent incorporated entity notwithstanding the captive power arrangement, economic integration and shareholding relationship between the two companies – HELD – The appellant is not legally entitled to avail CENVAT credit of Countervailing Duty paid on capital goods imported by M/s Coromandel Electric Company Ltd., a separate incorporated legal entity. Statutory tax benefits must attach to the legal entity recognized by statute and not merely to the economic beneficiary of the transaction. The imported capital goods stood in Bills of Entry filed in the name of the Special Purpose Vehicle and customs duty including Countervailing Duty was discharged by that entity as importer of record. The CENVAT Credit Rules do not recognize any principle by which credit legally accruing to one incorporated entity may automatically stand transferred to another merely because both entities are commercially interconnected or because the appellant holds majority shareholding. The doctrine of separate juristic personality remains fundamental to company law and cannot be selectively disregarded merely because such disregard would yield tax advantage. Rule 3 and Rule 4(3) of the CENVAT Credit Rules permit credit only by a manufacturer or eligible person in prescribed modes and do not recognize transfer of credit entitlement between separate legal entities. The appellant neither imported the goods directly nor acquired them under any arrangement contemplated under the Rules. The statutory conditions for availment of credit therefore remain unfulfilled. The decisions in Vikram Cement v Commissioner of Central Excise and Birla Corporation Ltd. v Commissioner of Central Excise concerning single assessee claiming credit within integrated manufacturing operations do not apply to the present situation involving two separate incorporated entities. The economic integration and functional nexus cannot create statutory entitlement where the statute does not confer one – The impugned order is upheld and the appeal filed by the appellant is dismissed - Central Excise – CENVAT Credit – Recovery of Inadmissible Credit – Interest and Penalty – Having determined that the appellant was not entitled to avail CENVAT credit of Countervailing Duty paid on capital goods imported by another separate entity – Whether the demand for recovery of the credit together with applicable interest and equal penalty under Section 11AC of the Central Excise Act, 1944 and Rule 15(2) of the CENVAT Credit Rules, 2004 was sustainable – The appellant contended that the availment was based on bona fide interpretation of the Rules, the transaction was revenue neutral as duty was already discharged by the separate entity, and the dispute was purely interpretational in nature – HELD – The demand for recovery of inadmissible CENVAT credit is legally sustainable. Having held that the appellant was not legally entitled to avail the disputed CENVAT credit, recovery of the same under Rule 14 of the CENVAT Credit Rules, 2004 is the inevitable statutory consequence. The plea of revenue neutrality cannot validate credit availed contrary to statutory provisions or defeat recovery of inadmissible credit, as equitable considerations cannot create a substantive right where the statute does not confer one. The appellant admittedly availed credit on capital goods imported by another independent corporate entity without any statutory provision permitting such availment. Recovery of statutory interest, being compensatory in nature, follows automatically as a consequence of recovery of inadmissible credit. The imposition of equal penalty under Section 11AC is also sustainable as the appellant availed credit without any statutory authority. The fact that the dispute involves interpretation of law does not set aside interest and penalty when credit is availed in violation of the statutory framework. The demand confirmed under the impugned Order-in-Original is therefore legal and sustainable.
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