2017 (2) TMI 837 - AT - Central Excise

Clarification on Rule 11(3) Amendment: Appellant entitled to CENVAT credit for pre-2007 inputs

The judgment clarified that the amendment to Rule 11(3) was prospective, coming into effect from 01.3.2007. As the period in question was before this ... Prospective operation of amendment to Rule 11(3) - CENVAT credit reversal on opting for exemption - remand for factual verification of utilisation of inputsProspective operation of amendment to Rule 11(3) - CENVAT credit reversal on opting for exemption - Amendment to Rule 11(3) brought into effect from 1-3-2007 operates prospectively and does not apply to inputs procured prior to that date, hence CENVAT credit availed before 1-3-2007 need not be reversed on account of subsequent exemption. - HELD THAT: - The Tribunal accepted the legal principle laid down by the High Court in Gokuldas Intimate Wear that sub rule (3) inserted with effect from 1 3 2007 is prospective. Prior to 1 3 2007 an assessee was entitled to retain benefit of CENVAT credit in respect of inputs contained in work in progress and semi finished products; the amendment, having effect only from 1 3 2007, cannot be applied retrospectively to require reversal of credit taken before that effective date. The Tribunal therefore treated the settled legal position as favouring the appellant subject to factual verification as to timing of utilization of inputs. [Paras 4]Legal principle affirmed that the 1 3 2007 amendment is prospective and pre 1 3 2007 CENVAT credit is not automatically liable to reversal.Remand for factual verification of utilisation of inputs - Whether the appellant utilised inputs procured before or after 1-3-2007 in manufacture of goods is to be ascertained by the adjudicating authority. - HELD THAT: - The Tribunal observed that the record did not clearly establish whether the inputs on which credit was availed were procured before or after 1 3 2007. Since the applicability of the prospective amendment turns on that factual point, the matter was remanded to the adjudicating authority for fresh adjudication and decision in the light of the High Court's ruling, after affording the appellant an opportunity of hearing. [Paras 5]Matter remanded to determine the date of procurement/utilisation of inputs and for decision afresh in light of the settled legal principle.Final Conclusion: The appeal is allowed by way of remand: the legal position that the Rule 11(3) amendment of 1 3 2007 is prospective is accepted, and the matter is remitted to the adjudicating authority to ascertain whether the inputs were procured/used before or after 1 3 2007 and to decide accordingly after hearing the appellant. Issues involved:1. Availing CENVAT credit prior to switching over to an exemption notification.2. Interpretation of the retrospective or prospective nature of an amendment to Rule 11(3) of the Central Excise Rules.3. Requirement to reverse CENVAT credit based on the timing of input procurement and utilization.Detailed analysis:Issue 1: The appellant was engaged in the manufacture of Cotton Fabrics, Man-made fabrics, and Made-up articles. They availed CENVAT credit of Rs. 10,17,810 in May 2007 to June 2007 but failed to reverse the same before switching over to exemption Notification No.30/2004-C.E. dated 29.7.2004 from 1.7.2007. Both authorities confirmed the demand based on this non-reversal.Issue 2: The appellant argued that the amendment to Rule 11(3), which required the reversal of CENVAT credit, was brought into effect from 01.3.2007 and was prospective, not retrospective. Citing a judgment by the Karnataka High Court, they contended that the credit availed prior to 01.3.2007 did not need to be reversed.Issue 3: The Revenue contended that it was unclear whether the inputs procured were utilized before or after 01.3.2007 in the manufacture of goods. They suggested remanding the matter to the adjudicating authority to ascertain this fact.The judgment clarified that the amendment to Rule 11(3) was prospective, coming into effect from 01.3.2007. As the period in question was before this date, the appellant was entitled to the benefit of CENVAT credit for inputs contained in work in progress and semi-finished products. The judgment favored the appellant, stating that the substantial questions of law were answered in their favor against the Revenue. The matter was remanded to the adjudicating authority to determine whether the inputs were utilized before or after 01.3.2007, with an opportunity for the appellant to present their case. The appeal was allowed by way of remand.