CESTAT Rules in Favor of Sock Manufacturers on Deemed Credit Disallowance

The Appellate Tribunal CESTAT, Mumbai allowed the appeal in favor of the appellants, manufacturers of knitted socks, in a case concerning the disallowance of deemed credit under Rule 9A(2) of the Cenvat Credit Rules, 2002. The tribunal held that the appellants were entitled to deemed credit as they had submitted a stock statement of finished goods on the date when the goods became dutiable, complying with relevant notifications. Consequently, the tribunal set aside the disallowance and penalty imposition, ruling in favor of the appellants on 31-1-2007.

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Issues: Disallowance of deemed credit and penalty imposition under Rule 9A(2) of the Cenvat Credit Rules, 2002.

In this judgment, the Appellate Tribunal CESTAT, Mumbai addressed the issue of disallowance of deemed credit amounting to Rs. 73,547/- to the appellants, who were manufacturers of knitted socks, under Rule 9A(2) of the Cenvat Credit Rules, 2002. The authorities had disallowed the credit on the basis that the appellants failed to file a written declaration of inputs lying in stock or in process as required by the rule. However, the appellants had submitted a stock statement of finished goods on 1-4-2003, the date when knitted socks became dutiable, and had cleared goods at a concessional rate of duty in compliance with Notification 8/2003 dated 1-3-2003. The appellants also reversed credit of Rs. 7,155/- taken on inputs lying in stock as on 31-3-2003, ensuring that the inputs retained the character of duty paid inputs. The tribunal noted that the stock statement dated 1-4-2003 could be accepted as the required declaration under Rule 9A(2) since it was submitted on the date the goods became dutiable. As a result, the tribunal held that the appellants were entitled to deemed credit under Rule 9A(2) and were not subject to the provisions of Rule 9A(1) which required production of duty paying documents for credit. Consequently, the tribunal set aside the impugned order and allowed the appeal in favor of the appellants. The judgment was pronounced in court on 31-1-2007.

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