2012 (4) TMI 369 - HC - Central Excise

Court Upholds Assessee's Cenvat Credit Rights: Precedent-Setting Decision

M/s RANBAXY LABORATORIES LTD Versus COMMISSIONER OF CENTRAL EXCISE, CHANDIGARH

The court ruled in favor of the assessee, holding that Cenvat credit on inputs lying in stock when the final product becomes exempt from excise duty ... Whether the Modvat/Cenvat credit on the inputs in process and in finished products is liable to be reversed/paid back when the final product becomes exempt from payment of duty - Appellants took cenvat credit on inputs procured prior to 10.1.2005 and out of the inputs procured some stock were lying with them – AO stated that assessee with respect to these inputs did not reverse the proportionate cenvat credit since at the time when these inputs were procured, cenvat credit was validly taken and utilized – Held that:- Since the language of Rule 9(2) of the Cenvat Rules is identical to that of Rule 57H(5) of the Excise Rules, the interpretation given by the Apex Court has to apply in the present case stating 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 – on the date when they paid the tax on the raw materials or the inputs, that right would continue until the facility available thereto gets worked out or until those goods existed - decided in case Collector of Central Excise, Pune and others vs. Dai Karkaria Ltd. and others (1999 - TMI - 94220 - CEGAT, NEW DELHI) – in favour of assessee. Issues Involved:1. Eligibility of Cenvat credit on inputs lying in stock when the final product becomes exempt from excise duty.Detailed Analysis:1. Eligibility of Cenvat Credit on Inputs Lying in Stock:The appellants, engaged in the manufacture of medicament under Chapters 29 and 30 of the Central Excise Tariff Act, 1985, set up a unit in Himachal Pradesh to avail exemption benefits under Notification No. 50/2003-CE dated 10.1.2005. They took Cenvat credit on inputs procured before 10.1.2005 and utilized it for discharging excise duty on finished goods. However, they did not reverse the Cenvat credit for inputs lying in stock as of 10.1.2005. The Revenue issued a show cause notice on 21.11.2005, arguing that the appellants wrongly took Cenvat credit. The Commissioner of Central Excise confirmed the demand and imposed a penalty, which was upheld by the Customs, Excise & Service Tax Appellate Tribunal (CESTAT).The High Court examined whether the inputs lying in stock on the date when the final product becomes exempt from duty are eligible for Cenvat credit. The appellants argued that the issue was already settled by previous decisions of the court, specifically in the cases of Commissioner of Central Excise, Chandigarh vs. M/s United Vanaspati Ltd. and Commission of C.Ex., Chandigarh vs. Saboo Alloys Pvt. Ltd. The court noted that in these cases, it was held that even if the final product is exempt from excise duty, the assessee cannot be asked to reverse the Modvat credit already taken.The court also referenced the Supreme Court's decision in Collector of Central Excise, Pune vs. Dai Karkaria Ltd., which established that once Cenvat credit is validly taken, it is indefeasible and cannot be reversed unless it was illegally or irregularly taken. The court found that the Appellate Authority failed to appreciate this legal precedent and had dealt with the matter in a perfunctory manner.Additionally, the court noted similar judgments from other High Courts, including the High Court of Kerala in Collector of Central Excise and Custom, Cochin vs. Premier Tyres Ltd., and the High Court of Rajasthan in Hindustan Zinc Ltd. vs. Union of India, which supported the appellants' position. The court also referenced the High Court of Karnataka's decision in Commission of Central Excise vs. M/s TAFE Limited, which held that once input credit is legally taken and utilized, it need not be reversed even if the final product becomes exempt subsequently.The court concluded that the findings of the authorities were perverse and against settled legal principles. The substantial question of law was answered in favor of the assessee, and the impugned orders dated 17.11.2006 and 30.4.2010 were set aside. The court held that the Cenvat credit availed on inputs till the date of exemption vests in the assessee and cannot be divested by the Revenue.