Revenue neutrality in Cenvat credit: duty paid on clearance treated as reversal, defeating a separate reversal demand.

Duty paid on clearance of re-conditioned imported machines was treated as substantive reversal of the Cenvat credit earlier availed, because the duty paid exceeded the credit taken. Applying revenue neutrality, the Tribunal held that a separate demand for reversal of the same credit was not sustainable where the duty discharged on clearance equalled or exceeded the credit availed. The result was that the reversal demand failed and the assessee's position was upheld.

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Issues: Whether duty paid on clearance of re-conditioned machines, which exceeded the Cenvat credit availed, could be treated as reversal of credit so as to negate the demand for reversal of the credit taken on import.

Analysis: The appellant imported second-hand machines, availed Cenvat credit on the CVD paid, and later cleared the re-conditioned machines on payment of excise duty. The rebate claim on export had been rejected, but the duty actually paid on clearance was more than the credit availed. In these circumstances, the payment of duty was treated as having reversed the credit in substance. The Tribunal applied the principle of revenue neutrality and followed the view that where duty paid is equivalent to or exceeds the credit taken, a further demand for reversal of the same credit is not sustainable.

Conclusion: The demand for reversal of Cenvat credit was not sustainable and the appeal was allowed in favour of the assessee.

Ratio Decidendi: Where duty paid on clearance of goods equals or exceeds the Cenvat credit availed, the transaction is revenue neutral and the credit is treated as reversed, making a separate demand for reversal unsustainable.

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