Credit of Concessional Countervailing Duty on Imported Coal Is Not Cut Down by Excise Conditions: Rajasthan High Court Dismisses Revenue's Appeals Against Hindustan Zinc

Quick answer: In Union of India v. Hindusthan Zinc Ltd., decided on 5 October 2026 (neutral citation 2026:RJ-JD:48182-DB, marked Reportable), a Division Bench of the Rajasthan High Court (Sanjay K. Agrawal, C.J., and Baljinder Singh Sandhu, J.) held that a manufacturer that imports steam coal and pays additional duty of customs at the concessional 1%/2% rate under Notification No. 12/2012-Cus. dated 17 March 2012, as amended, may take CENVAT credit of that duty under Rule 3(1)(vii) of the CENVAT Credit Rules, 2004. The restrictions in the provisos to Rule 3(1)(i), which deny credit of excise duty paid on goods cleared under certain excise exemptions, were not imported into Rule 3(1)(vii). The five demands, together Rs.51,47,27,714 on the figures stated in the judgment, covered April 2012 to June 2017. The Revenue’s appeals against the Tribunal’s order of 2 September 2021 were dismissed.

Key Takeaways

• Rule 3(1)(i) and Rule 3(1)(vii) are separate heads of credit. The Court accepted the Tribunal’s finding that the Commissioner “mixed up” the two and wrongly applied the provisos to Rule 3(1)(i) to credit claimed under Rule 3(1)(vii).
• The decisive fact was what was actually paid. The assessee paid additional duty of customs under Notification No. 12/2012-Cus., not excise duty, and had not availed the excise exemptions named in the provisos to Rule 3(1)(i).
• The holding is tied to the CENVAT Credit Rules, 2004 and to the period April 2012 to June 2017. It is a legacy-regime ruling and does not construe the input tax credit provisions of the Central Goods and Services Tax Act, 2017.
• The reasoning is short. The Court relied on the Tribunal’s finding, a Regional Advisory Committee minute of 9 February 2015, and the Calcutta High Court’s decision in Shyam Steel Industries; it did not itself analyse the word “equivalent” in Rule 3(1)(vii).
• The judgment is marked Reportable and is a Division Bench ruling of a High Court, so it carries persuasive weight outside Rajasthan and binding weight within it.

1. Introduction

Credit for tax paid on inputs stops indirect taxes from cascading, and in the pre-GST period the CENVAT Credit Rules, 2004 (the “Credit Rules”) governed it. Rule 3 listed the duties on which a manufacturer could take credit. Clause (i) covered the duty of excise under the First Schedule to the Central Excise Tariff Act, 1985. Clause (vii) covered the “additional duty leviable under section 3 of the Customs Tariff Act, equivalent to the duty of excise” specified in the earlier clauses. In plain terms, clause (vii) is the credit route for countervailing duty (“CVD”), the customs levy that puts an imported good on a tax footing comparable with a domestic one.

This batch of central excise appeals turned on a recurring wrinkle. Clause (i) carries provisos denying credit of excise duty paid on particular goods, among them goods at serial numbers 67 and 128 of excise Notification No. 12/2012-C.E. dated 17 March 2012 where that exemption is availed. The Revenue argued that because credit on concessionally taxed domestic coal is blocked, the same restriction must follow the CVD on its imported counterpart. The assessee answered that clause (vii) is its own source of credit and carries no such condition.

On 5 October 2026 the Rajasthan High Court, sitting at Jodhpur, sided with the assessee. The ruling matters for three reasons. It settles, within that Court’s jurisdiction, a question affecting importers of steam coal that claimed credit of concessional CVD in the legacy period. It confirms that a credit denial cannot be built by transplanting a condition from one clause of Rule 3 into another. And it shows how much weight a High Court may place on a Tribunal’s finding and on departmental advisory material when the statutory text is only lightly examined.

This article sets out the facts and procedural history, analyses the reasoning and its limits, considers the consequences for credit positions and pending proceedings, and closes with an assessment. Paragraph references are to the judgment.

2. Case summary and background

The assessee and the credit. Hindustan Zinc Limited produces zinc and lead concentrates falling in Chapter 26 of the First Schedule to the Central Excise Tariff Act, 1985, from captive mines in Rajasthan (para 4.1). It consumes power generated at captive thermal power plants at its mines, using imported steam coal and steam non-cooking coal of heading 27.01 as fuel (paras 4.2 and 9). On importation it paid CVD under Section 3(1) of the Customs Tariff Act, 1975, at the concessional rate prescribed by serial numbers 122A and 123 of Customs Notification No. 12/2012-Cus. dated 17 March 2012 (paras 4.2 and 12), and took CENVAT credit of that duty under Rule 3(1)(vii) (para 9).

The notices. The Revenue issued five show cause notices alleging that the credit contravened Rule 3 (para 4.3). The judgment tabulates them:

These sum to Rs.51,47,27,714; the total is my arithmetic, and the judgment states only the five amounts.

Adjudication and the Tribunal. By a common Order-in-Original No. UDZ-EXCUS-000-COM-0076-0080-18-19 dated 26 February 2019, the Commissioner, Central Goods and Service Tax, Udaipur confirmed the demands (para 4.4). The Customs, Excise and Service Tax Appellate Tribunal, New Delhi allowed all five appeals by Final Order Nos. 51785-51789/2021 dated 2 September 2021 (paras 4.5 and 4.6). It held that the Commissioner had applied the restrictions of Rule 3(1)(i) to credit availed under Rule 3(1)(vii): the assessee had paid additional duty of customs, not excise duty, and the conditions of clause (i) could not be imported into clause (vii). It also noted that departmental authorities, including the Regional Advisory Committee, Hyderabad Zone, had recognised such credit (para 4.6), and followed its earlier decision in Hindalco Industries Ltd. v. GST, Bhopal, 2018 (363) E.L.T. 1085 (Tri.-Del.) (para 4.7).

The question of law. The Revenue appealed as Central Excise Appeal Nos. 4 to 8 of 2022. By order dated 10 August 2023 the Court framed a common substantial question (para 3): “Whether the additional duty of Customs paid @ 1%/2% was not the duty of the excise as specified under the Central Excise Tariff Act, 1985 and whether Cenvat credit of additional duty of customs paid under the Customs Notification No.12/2012-Cus dated March, 17, 2022, as amended, is admissible to the assessee.” The year “2022” in that question is evidently a slip for 2012, the date of the notification discussed throughout the judgment.

The submissions. For the Revenue, Mr. Rajat Arora argued that credit of CVD runs only through clause (vii), which grants credit of additional duty “equivalent” to the excise duty in clauses (i) to (via); that clause (i) is qualified by proviso (b), which bars credit where the benefit of serial number 67 of Notification No. 12/2012-C.E. (coal of heading 2701) is availed; and that credit cannot be taken on domestic coal cleared at the concessional rate (para 6). For the assessee, Mr. Vinay Jain relied on the minutes of the Regional Advisory Committee, Hyderabad Zone, of 9 February 2015, and on the Calcutta High Court’s dismissal of the Revenue’s appeal in Commissioner of CGST & CX, Bolpur Commissionerate v. Shyam Steel Industries Ltd. (decided 5 September 2022) (para 7).

The holding. The Court held that the Tribunal had rightly found the assessee entitled to credit of the 1%/2% additional duty of customs paid on imported coal under Notification No. 12/2012-Cus., as amended by the notification of 1 March 2016, observing that the Tribunal’s findings “are strictly based on the material available on record”. The question was answered against the Revenue and the appeals were dismissed, parties to bear their own costs (paras 16 and 17).

3. Legal analysis

3.1 The statutory scheme. Rule 3(1), as reproduced by the Court (para 10), lists the duties creditable. Clause (i) is the duty of excise under the First Schedule, with a proviso denying credit where the goods were cleared under Notification No. 1/2011-C.E. dated 1 March 2011, or under serial numbers 67 and 128 of Notification No. 12/2012-C.E. Clause (vii) allows credit of “the additional duty leviable under section 3 of the Customs Tariff Act, equivalent to the duty of excise specified under clauses (i), (ii), (iii), (iv), (v), (vi) and (via)”. The proviso sits only under clause (i).

The Revenue’s argument turned on “equivalent”. If additional duty is creditable only to the extent it is equivalent to excise duty that would itself be creditable, the block on concessionally taxed domestic coal would limit credit on the imported coal. That is a coherent textual argument; the question is whether it is the better reading.

3.2 The Tribunal’s finding as the ground. The Court’s reasoning on the clause is compressed. Paragraph 11 notes that clause (i) carries “twin conditions incorporated in proviso (a) & (b)” and that clause (vii) allows credit of additional duty equivalent to the earlier clauses. Paragraph 12 then adopts paragraph 16 of the Tribunal’s order, which found that “The Commissioner has mixed up rule 3(1)(i) and rule 3(1)(vii) of rule 3 of the Credit Rules”, that the assessee had neither paid excise duty nor availed the excise notifications named in the provisos, and that it had paid additional duty of customs under serial numbers 122A/123. Paragraph 13 records that “The said finding of the learned Tribunal could not be substantially questioned and contradicted by the learned counsel for the Revenue.”

This ground is sound but narrow. The provisos to clause (i) are framed around a taxpayer who has availed a particular excise exemption. An importer paying CVD under a Customs notification has availed no such exemption, so the provisos do not apply by their own terms, and the Revenue needs a bridge carrying them into clause (vii). The only candidate is the word “equivalent”.

3.3 “Equivalent” is not analysed. The Court’s own reasons do not engage the Revenue’s argument on that word. The fullest discussion appears in the Calcutta High Court passage the Court reproduces (para 15), where counsel for the assessee in that case referred to Chandrakala Trivedi v. State of Rajasthan, (2012) 3 SCC 129, for the proposition that “equivalent” allows some flexibility and is not “exact”. That is counsel’s submission as recorded in the Calcutta decision; the Rajasthan Court did not itself cite or apply it, and does not squarely hold that “equivalent” in clause (vii) refers to the category of duty rather than its creditability transaction by transaction. The ratio therefore rests on the structure of Rule 3(1) and on adoption of the Tribunal’s finding, not on an authoritative construction of that word.

The better view of the text supports the outcome. The proviso is expressed as a limit on “such duty of excise” under clause (i). Clause (vii) is a free-standing entry identifying its subject by its own source, Section 3 of the Customs Tariff Act. “Equivalent” most naturally fixes the category and measure of the additional duty by reference to excise duty on like goods, not the conditions of credit. Had the rule-maker wished to restrict credit of additional duty, it could have attached a proviso to clause (vii) itself.

3.4 The advisory committee minute. The Court reproduced the minute of 9 February 2015 (para 13). It recorded that the Board’s Circular No. 41/2013-Cus. dated 21 October 2013 had treated 2% CVD as the “general applied” rate, and replied that because the goods bore reduced CVD under Section 3 read with Notification No. 12/2012-Cus. “and not under Notification no.1/2011 (CE)”, the credit “appears” eligible. Two cautions follow. An advisory minute is not a binding clarification, and its phrasing is tentative; it is better read as evidence that the department itself understood the position as the assessee did than as a source of law. And the minute as quoted dates the Customs Notification 17.03.2013, whereas the notification in issue is dated 17 March 2012; the discrepancy is in the quoted text and does not affect the outcome.

3.5 The Calcutta High Court’s decision. The Court reproduced the questions framed in Shyam Steel Industries and its paragraphs 7 to 9 (paras 14 and 15). Those paragraphs refer to Circular No. 41/2013-Cus., the same advisory minute, and Tribunal and other decisions: Hindalco Industries Ltd. v. GST, Bhopal, 2018 (363) E.L.T. 1085; CCE & ST, Surat-I v. Aarti Industries Ltd., 2019 (3) TMI 240; Asahi Songwon Colors Ltd. v. CCE & ST, Vadodara, 2018 (9) TMI 159; Commissioner v. Shree Cement Ltd., 2022 (7) TMI 978; SRF Ltd. v. Commissioner of Customs, Chennai, (2015) 318 E.L.T. 607 (SC); and Tamil Nadu Newsprint & Papers Ltd. v. Commissioner, 2021 (10) TMI 13. These authorities appear only within the extracted Calcutta passage. The Rajasthan Court said no more than that “In view of the above” the Tribunal was right (para 16). It did not independently examine each listed decision, and the judgment does not say what SRF held.

3.6 Issues not decided. The substantial question concerned admissibility of credit only. The judgment records no argument or decision on limitation or the extended period, penalty, the proper officer, or any alternative-remedy point. The notices were issued on 1 May 2017, 27 July 2018 and 5 September 2018 for periods going back to April 2012, but the Court gives no view on timing.

3.7 Survival, regime and critique. The ruling construes the Credit Rules for April 2012 to June 2017. The last period in dispute ends with the month before the Central Goods and Services Tax Act, 2017 took effect on 1 July 2017, and the judgment says nothing about GST. It should not be assumed to carry over: input tax credit under Chapter V of that Act has a different architecture, with its own conditions and blocked credits, and a CENVAT ratio does not transfer to GST merely because the language is similar. Whether later amendments to the Credit Rules or to Notification No. 12/2012-C.E. alter the position for other periods is not addressed.

As to quality, the result is persuasive but the route is thinner than one expects of a reportable Division Bench ruling on a question worth over Rs.51 crore. The Court sets out no construction of clause (vii), leaves the Revenue’s argument on “equivalent” unanswered in its own words, and leans on an advisory minute and a sister High Court. Paragraph 11 also refers to “Rules 3(1)(ii)” where clause (vii) is evidently meant, a slip that does not alter the sense. The decision’s strength is its sound unstated logic and its consistency with Calcutta, which lowers the risk of a split. Its weakness is that a litigant seeking to distinguish it, for instance on a notification-specific basis, has little express reasoning to engage.

4. Practical significance

Credit positions and pending proceedings. For importers of steam coal that paid CVD at the 1%/2% rate under Notification No. 12/2012-Cus. and took credit under Rule 3(1)(vii) in the legacy period, the judgment is strong support in Rajasthan and persuasive support elsewhere, alongside the Calcutta decision. Where a notice or order on the same ground is pending before an adjudicating authority or the Tribunal, the assessee should lead with the structural point: the provisos attach to clause (i), and the duty paid was additional duty of customs.

Facts to establish. The ruling is anchored in specific facts, and a claimant should be able to show them: the duty was paid as CVD under Section 3(1) of the Customs Tariff Act; at the rate prescribed by the relevant serial number of Notification No. 12/2012-Cus.; no excise exemption named in the provisos to Rule 3(1)(i) was availed on the import; and the coal was an input in manufacture, here generating captive power. Bills of entry, the notification entries invoked and power-consumption records will place a file well.

Audit and departmental proceedings. The audit objection rested on the view that CVD under the concessional entry stands “in lieu of” excise duty on which credit is barred. That view is hard to maintain in Rajasthan, and officers there should be expected to follow the Division Bench. Elsewhere the Revenue may contest the point in forums that have not considered the Calcutta and Rajasthan decisions. The reliance of the Tribunal and the Court on the advisory minute shows that departmental material can evidence the department’s own understanding; cite the minute and the circular as support, not as the legal foundation.

Choice of remedy. This was a statutory appeal on a substantial question of law, reached after adjudication and a Tribunal appeal. It is not a writ authority and says nothing on when a writ lies against a notice raising the same ground; an assessee facing a fresh notice should expect to reply and follow the statutory route.

Contracts and invoicing. Long-term coal supply or power purchase contracts that allocate duty variations should be checked for clauses that assumed CVD would be non-creditable; a vindicated credit position may require reconciliation of pass-through amounts.

Citing the judgment. Because it is marked Reportable, it may be cited as a Division Bench decision of the Rajasthan High Court, for the narrow proposition that additional duty of customs paid under Notification No. 12/2012-Cus. is creditable under Rule 3(1)(vii) and that the provisos to Rule 3(1)(i) do not apply to it. It should not be cited for a general construction of “equivalent”, which the Court did not decide in terms.

5. Conclusion

The Rajasthan High Court has resolved a recurring legacy dispute in the assessee’s favour. Credit of concessional additional customs duty on imported steam coal falls under Rule 3(1)(vii) of the CENVAT Credit Rules, 2004 and is not subject to the provisos that qualify Rule 3(1)(i). The result follows from the structure of Rule 3(1): the provisos belong to clause (i) and are framed around an excise exemption the importer never availed. In my assessment, the Revenue’s attempt to carry them into clause (vii) fails, and the Court was right to say so.

The judgment is less satisfying as an exposition. It adopts the Tribunal’s finding, relies on an advisory minute and the Calcutta High Court, and leaves the Revenue’s argument on “equivalent” unanswered in the Court’s own words. That does not undermine the outcome, but it means the authority is most useful to those whose facts mirror the assessee’s: import of steam coal, payment of CVD under Notification No. 12/2012-Cus., use as an input in manufacture, and no excise exemption availed. Those whose facts differ should expect an attempt to distinguish it.

Two limits should stay in view. The ruling concerns the Credit Rules for April 2012 to June 2017 and says nothing about input tax credit under the Central Goods and Services Tax Act, 2017. And it records no argument on limitation, penalty or the extended period, which remain open wherever they arise. For pending legacy disputes, the practical course is to map the facts against the four conditions above, plead the structural argument first, and use the circular and minute as corroboration.

Authorities

Authorities applied or relied on by the Court

Authorities appearing only within the Calcutta High Court passage extracted in the judgment (para 15)

Legislation and notifications considered

Judgment

Union of India, through the Commissioner, CGST and Central Excise Commissionerate, Udaipur v. Hindusthan Zinc Ltd., D.B. Central Excise Appeal Nos. 4, 5, 6, 7 and 8 of 2022, 2026:RJ-JD:48182-DB, High Court of Judicature for Rajasthan at Jodhpur (Sanjay K. Agrawal, C.J., and Baljinder Singh Sandhu, J.), order dated 5 October 2026 — https://indiankanoon.org/doc/109441396/

FAQ

Is credit of concessional CVD on imported coal available under Rule 3(1)(vii) of the CENVAT Credit Rules, 2004? On this judgment, yes, for the period April 2012 to June 2017 where the additional duty was paid under Notification No. 12/2012-Cus. and no excise exemption named in the provisos to Rule 3(1)(i) was availed. The Court held that the provisos to clause (i) do not apply to credit claimed under clause (vii).

Does this ruling apply to input tax credit under GST? The judgment does not decide any GST question and concerns the Credit Rules for periods ending June 2017. Input tax credit under the Central Goods and Services Tax Act, 2017 rests on a different statutory scheme and should be analysed on its own text.

Did the Court decide limitation or penalty? No. The question framed was whether the credit was admissible, and the judgment records no decision on limitation, the extended period or penalty.

This article is not legal advice and does not create an attorney–client relationship. Readers should verify the certified copy of the judgment and any subsequent clarificatory orders before relying on it, and consult a qualified advocate on the facts of their matter.