2012 (9) TMI 245 - AT - Central Excise

Appellate Tribunal rules input credit not reversible when opting for exemption after specific date

The Appellate Tribunal CESTAT, New Delhi allowed the appeal in a case concerning the reversible nature of input credit elements in stock or work in ... Reversal of Cenvat credit on stock and work-in-progress on opting for exemption - No one-to-one relation rule for input-output in Cenvat - Option for exemption extinguishing right to avail unutilised Cenvat credit - High Court decisions denying recovery by reversal where SSI opts for exemptionReversal of Cenvat credit on stock and work-in-progress on opting for exemption - No one-to-one relation rule for input-output in Cenvat - Option for exemption extinguishing right to avail unutilised Cenvat credit - Whether Cenvat credit attributable to inputs lying in finished goods and work-in-progress on 31.3.2007 is liable to be recovered by reversal when the assessee opted for exemption with effect from 31.3.2007. - HELD THAT: - The Tribunal noted that the assessee had been discharging duty liability prior to 31.3.2007 and, following exercise of the option for exemption from that date, cleared closing stock of finished goods and work-in-progress without payment of duty. The claim for Cenvat credit rests on the no one-to-one relation rule, and once inputs are processed it is not feasible to identify specific input content in output for purposes of direct matching. Although the notification provides that exercising the option for exemption extinguishes the right to avail unutilised Cenvat credit on record, the Tribunal relied on decisions of the High Court which denied recovery of Cenvat credit by way of reversal where a Small Scale Industry opted for exemption. Applying those precedents and the practical difficulty of segregating input content in manufactured goods, the Tribunal concluded that recovery by reversal was not sustainable in the circumstances.Recovery of Cenvat credit by reversal in respect of inputs embedded in finished goods and work-in-progress on 31.3.2007 is not sustained; appeal allowed.Final Conclusion: The appeal is allowed: the Tribunal declined to order reversal/recovery of Cenvat credit attributable to inputs in stock or work-in-progress on 31.3.2007 when the assessee opted for exemption, following the no one-to-one rule and relevant High Court precedents. Issues Involved:Whether input credit element in stock or work in progress is reversible when opting for exemption after a specific date.Analysis:The appeal before the Appellate Tribunal CESTAT, New Delhi revolves around the issue of whether the input credit element lying in stock or work in progress shall be reversible when the appellant opts for exemption after 31.3.2007. The dispute arises from the fact that prior to the mentioned date, the appellant was discharging duty liability. However, after 31.3.2007, the closing stock of finished goods and work in progress were cleared without payment of duty as the appellant chose exemption from that date onwards. The Revenue contended that since Cenvat credit had been allowed on the input used in manufacturing the finished goods and work in progress, the part of such input remaining in stock on 31.3.2007 should be recovered due to the output being exempted.The claim of Cenvat credit is based on the 'no one to one relation rule,' indicating the challenge in dissecting the input content from the output after processing. Additionally, the notification specifies that opting for exemption extinguishes the right to avail any unutilized Cenvat credit on record. This issue has been a subject of controversy before the Hon'ble High Court of Punjab & Haryana in previous cases such as CCE, Chandigarh vs. C.N.C. Commercial Ltd. and CCE, Chandigarh vs. Tyre Tops. The High Court has previously ruled against the recovery of Cenvat credit through reversal when a Small Scale Industry opts for exemption.In light of the precedents and the arguments presented, the appeal has been allowed by the Appellate Tribunal CESTAT, New Delhi, indicating a favorable decision for the appellant regarding the reversible nature of input credit elements in stock or work in progress when opting for exemption post the specified date.