Subsequent reversal of Cenvat credit initially availed but not utilized, tantamount to non-availment of Cenvat credit

Dear Professional Colleague,

Subsequent reversal of Cenvat credit initially availed but not utilized, tantamount to non-availment of Cenvat credit

We are sharing with you an important judgment of Hon’ble CESTAT, New Delhi, in the case of JCT Limited Vs. CCE, Jallandhar and Ludhiana and vice-versa [2015 (2) TMI 600 - CESTAT NEW DELHI] on the following issue:

Issue:

Whether subsequent reversal of Cenvat credit initially availed but not utilized, tantamount to non-availment of Cenvat credit?

Facts and background:

JCT Limited (“the Assessee”), in their composite mill, manufactured cotton yarn from cotton and used the same within the factory for weaving of fabrics. In respect of captive clearances of cotton yarn, the Assessee was availing full duty exemption under Notification No. 30/04-CE dated July 9, 2004 (“the Exemption Notification”). The goods covered by the Exemption Notification are fully exempt from Excise duty, if no Cenvat credit in respect of Inputs has been taken. In the instant case, the Assessee took Cenvat credit in respect of packing material during November, 2005 and December 2005 of ₹ 1,622/- and during January to March 2006 of ₹ 2,753/-. However, subsequently on being pointed out by the Department, the Assessee reversed the said Cenvat credit. Further, there was no dispute that aforesaid Cenvat Credit of ₹ 4375/- was utilized by the Assessee for payment of duty on any of their final product.

But, the Department contended that the Assessee is not eligible for availing the benefit of the Exemption Notification even if the availed Cenvat credit is subsequently reversed. Therefore, the Adjudicating Authority confirmed the demand along with interest and penalty, by denying the exemption under the Exemption Notification and also allowed the cum duty benefit i.e., treating the sale price of the yarn as including the Excise duty. Thereafter, the Order of the Adjudicating Authority was upheld by the Ld. Commissioner (Appeals). Being aggrieved both the Assessee and the Department preferred an appeal before the Hon’ble CESTAT, Delhi in respect of duty demanded and allowing of the cum duty benefit respectively.

Held:

The Hon’ble CESTAT, Delhi relying upon the judgment of Hon’ble Allahabad High Court in the case Hello Minerals Water (P) Ltd. Vs. Union of India [(2004 (7) TMI 98] which was based on the Hon’ble Apex Court judgment in the case of Chandrapur Magnet Wire (P) Ltd. Vs. CC, Nagpur [1995 (12) TMI 72 - SUPREME COURT OF INDIA], held that since the Cenvat credit initially taken was reversed without being utilised by the Assessee, it is to be treated as if the Assessee has not taken the Cenvat credit and hence, would be eligible for the exemption benefit under the Exemption Notification.

It was further held by the Hon’ble Tribunal that since the duty demand itself has been set aside, the Revenue’s appeal would not survive and is accordingly dismissed.