2011 (4) TMI 1310 - HC - Central Excise

High Court upholds assessee's Cenvat credit entitlement pre-exemption, rejecting Revenue's appeal.

COMMISSIONER OF C. EX., BANGALORE-II Versus TAFE LTD. (TRACTOR DIVISION)

The High Court ruled in favor of the assessee, dismissing the Revenue's appeal. It affirmed that Cenvat credit on inputs received pre-exemption remains ... CENVAT credit - final product subsequently got exemption from tax - Held that: - if the assessee has paid the duty on inputs prior to the date of exemption he is entitled to the Cenvat credit once the inputs are received prior to the exemption. What happens subsequently is immaterial. The court in Commissioner of Central Excise, Bangalore-II, Commissionerate Versus Tafe Ltd. (Tractor Division) [2011 (3) TMI 67 - KARNATAKA HIGH COURT] has held that Cenvat credit availed on inputs till the date of exemption vest in the assessee and the assessee cannot be divested of that credit as the law does not provide for the same. Appeal dismissed - decided against Revenue. Issues:1. Challenge to Tribunal order on Cenvat credit reversal post-exemption.2. Entitlement to Cenvat credit on inputs received pre-exemption.3. Duty reversal on supplementary invoice for inputs pre-exemption.Analysis:1. The High Court addressed the challenge brought by the Revenue against the Tribunal's decision regarding Cenvat credit post-exemption. The Tribunal had relied on the Supreme Court judgment in CCE, Pune v. Dai Ichi Karkaria Ltd., emphasizing that once Cenvat credit is taken, it becomes indefeasible. The High Court referred to its own previous decision in CEA No. 82/2007, where it was held that Cenvat credit availed on inputs until the date of exemption remains with the assessee, and the assessee cannot be deprived of this credit. The Court clarified that the exemption of the final product from tax does not necessitate the reversal of Cenvat credit, whether for final products existing on the exemption date or for stored inputs and finished products. The Court reiterated that if duty on inputs was paid before the exemption date, the assessee is entitled to Cenvat credit, regardless of subsequent events.2. Regarding the entitlement to Cenvat credit on inputs received before the exemption date, the Court emphasized that once duty on such inputs was paid pre-exemption, the assessee retains the right to claim Cenvat credit. The Court underscored that the timing of when the inputs were received is crucial, and subsequent developments do not impact this entitlement. By aligning with its prior decision, the Court reiterated that the principle of maintaining Cenvat credit on inputs until the exemption date applies to the current case as well.3. The High Court concluded that there was no merit in the Revenue's appeal, dismissing it accordingly. The Court ruled in favor of the assessee on substantial questions of law, emphasizing the assessee's entitlement to Cenvat credit on inputs received before the exemption date. The decision upheld the principle that the payment of duty on inputs before the exemption date entitles the assessee to claim Cenvat credit, irrespective of subsequent events.