2016 (10) TMI 1027 - AT - Central Excise

Appeal partially allowed, credits post-01/04/2008 reversed, penalty reduced. No justification for pre-01/04/2008 credit reversal/lapse.

The Tribunal partly allowed the appeal, upholding the reversal of credits availed after 01/04/2008 but finding no justification for the reversal or ... SSI exemption - Cenvat credit of duty availed on inputs and input services received by the appellant on or after 01/04/2008 - Held that: - such credits are availed in violation of Rule 6 (1) of CCR, 2004. The provisions of said rule clearly states that the Cenvat credit shall not be allowed on such quantity of input used in or in relation to manufacture of exempted goods. As such, the manufacturer is not eligible to avail any credit when they are manufacturing only exempted goods. Reversal of credit availed on inputs, inputs contained in WIP and finished goods as on 01/04/08 as well as lapsing of balance of credit lying on the books of accounts of the appellants as on 01/04/200 - Held that: - The Honble High Court of Himachal Pradesh in Ranbaxy Laboratories Ltd. vs. CCE, Chandigarh reported in [2012 (4) TMI 369 - HIMACHAL PRADESH HIGH COURT] examined similar set of facts and held that though the final product may be exempt from payment of excise, the assessee cannot be asked to reverse the Modvat credit already taken by it - there is no justification to demand reversal of Cenvat credit already availed and also lying in books of accounts of the appellant. No fresh credit can be taken from 01/04/2008 on any inputs as the appellants were manufacturing only exempted goods from that date and they are not covered by the credit scheme during that period. Regarding imposition of penalty u/r 15 (1) of CCR, 2004, except for credits availed after 01/4/2008, the appellant is not liable to reverse/lapse the other credits duly taken, it is right and proper to reduce the penalty to ₹ 1 lakh on the appellant. Appeal disposed off - decided partly in favor of assessee. Issues Involved:1. Reversal of Cenvat credit on inputs and input services received after 01/04/2008.2. Reversal of Cenvat credit on inputs lying in stock, WIP, and finished goods as of 01/04/2008.3. Lapsing of balance Cenvat credit lying in accounts as of 01/04/2008.4. Imposition of penalty under Rule 15 (1) of Cenvat Credit Rules, 2004.Issue-wise Detailed Analysis:1. Reversal of Cenvat credit on inputs and input services received after 01/04/2008:The appellants continued to avail Cenvat credit on inputs and input services received after 01/04/2008, despite availing exemption under Notification No. 4/2006-CE. This was found to be in violation of Rule 6 (1) of Cenvat Credit Rules, 2004, which states that Cenvat credit shall not be allowed on inputs used in the manufacture of exempted goods. The Tribunal upheld the Original Authority's decision that the appellants were not eligible to avail any credit when manufacturing only exempted goods.2. Reversal of Cenvat credit on inputs lying in stock, WIP, and finished goods as of 01/04/2008:The legal issue regarding the reversal of credit availed on inputs lying in stock, WIP, and finished goods as of 01/04/2008, was settled by various decisions of the High Courts and the Supreme Court. The Tribunal referred to the Himachal Pradesh High Court's decision in Ranbaxy Laboratories Ltd. vs. CCE, Chandigarh, which held that once credit is validly taken, it is indefeasible and cannot be reversed merely because the final product becomes exempt from duty. The Tribunal found no justification to demand reversal of Cenvat credit already availed and lying in the books of accounts of the appellant.3. Lapsing of balance Cenvat credit lying in accounts as of 01/04/2008:The Tribunal also addressed the issue of lapsing of balance Cenvat credit lying in the accounts of the appellants as of 01/04/2008. It was noted that the credit availed before the exemption date should not lapse as per the settled legal position. The Tribunal cited various judgments, including the Karnataka High Court's decision in CEA No. 82 of 2007, which held that credit legally taken and utilized on dutiable final products need not be reversed even if the final product is later exempted. Therefore, the Tribunal concluded that the appellants were not liable to reverse or lapse the credits duly taken before 01/04/2008.4. Imposition of penalty under Rule 15 (1) of Cenvat Credit Rules, 2004:Regarding the penalty, the Tribunal considered the findings that except for credits availed after 01/04/2008, the appellant was not liable to reverse or lapse the other credits duly taken. Consequently, the Tribunal found it appropriate to reduce the penalty from Rs. 5 lakhs to Rs. 1 lakh.Conclusion:The appeal was partly allowed. The Tribunal upheld the reversal of credits availed after 01/04/2008 but found no justification for the reversal or lapsing of credits taken before that date. The penalty was reduced to Rs. 1 lakh. The order was pronounced in open court on 05/10/2016.