2016 (6) TMI 1260 - AT - Central Excise

Tribunal Upholds Decision on Reversal of Cenvat Credit for Exempted Products

The Tribunal dismissed the Revenue's appeal, upholding the Commissioner (Appeals) decision that the respondents' reversal of Cenvat credit for inputs used ... Reversal of CENVAT credit - Rule 6(3)(b) of the CCR - only grievance of the Revenue is that such reversal has taken place subsequent to the clearance of goods - Held that: - such reversal, even if subsequent to clearance of final product, is appropriate and result in a situation as if no credit was ever availed by the assessee - reliance placed in the case of COMMISSIONER OF CENTRAL EXCISE Versus ASHIMA DYECOT LTD. [2008 (9) TMI 87 - HIGH COURT GUJARAT] - appeal dismissed - decided against Revenue. Issues:1. Interpretation of Rule 6(3)(b) of the Cenvat Credit Rules regarding payment obligation for using common inputs in manufacturing exempted final products.2. Validity of the Commissioner (Appeals) decision to set aside the recovery proceedings initiated by the Revenue.3. Timing of reversal of proportionate credit in relation to clearance of goods and its impact on the applicability of Rule 6(3)(b).Analysis:1. The case involved a dispute where the Revenue initiated proceedings against the respondents for recovery of an amount concerning the use of common inputs in manufacturing both exempted and dutiable final products. The Revenue contended that a payment obligation under Rule 6(3)(b) of the Cenvat Credit Rules was applicable.2. The Commissioner (Appeals) overturned the original adjudicating authority's decision, noting that the respondents had already reversed the Cenvat credit linked to inputs used in manufacturing exempted final products. The Commissioner ruled out the applicability of Rule 6(3)(b) and allowed the appeal, leading to the Revenue filing the present appeal.3. The Tribunal, after considering both sides, observed that the Revenue did not contest the fact of proportionate credit reversal. However, the Revenue objected to the timing of the reversal, which occurred after the clearance of goods. The Tribunal referred to various legal precedents, including the decision of the Larger Bench of the Tribunal in Franco Italion Co. Pvt. Ltd. and the Supreme Court's ruling in Chandrapur Magnet, supporting the validity of credit reversal even post-clearance of final products.4. Additionally, the Tribunal cited the decision of the Hon'ble Allahabad High Court in Hello Minerals Water (P) Ltd. and the Gujarat High Court decision in CCE v. Ashima Dyecot Ltd., affirmed by the Supreme Court. These decisions emphasized that credit reversal, even after the goods' clearance, nullifies the availed credit as if it was never taken. Consequently, the Tribunal upheld the Commissioner (Appeals) decision based on the legal precedents and rejected the Revenue's appeal.5. In conclusion, the Tribunal dismissed the Revenue's appeal, finding no grounds to interfere with the Commissioner (Appeals) decision, which aligned with established legal principles and precedents.