CENVAT credit lapses on re-entry into SSI exemption, barring later utilisation of remaining balance

Rule 11(2) of the CENVAT Credit Rules, 2004 was applied to credit remaining unavailed and unutilised when a manufacturer re-entered the SSI exemption regime after having taken CENVAT credit. The provision requires credit attributable to inputs in stock, work-in-process or finished goods on the date of opting for exemption to be dealt with as prescribed, and the balance cannot be carried forward for duty payment. On that basis, the Tribunal accepted that the appellant could not utilise the leftover credit after opting for exemption, and the demand, interest and penalty were sustained.

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Issues: Whether the appellant was entitled to avail and utilise CENVAT credit lying unavailed and unutilised after opting for SSI exemption, and whether Rule 11(2) of the CENVAT Credit Rules, 2004 barred such utilisation.

Analysis: The dispute turned on the effect of Rule 11(2) of the CENVAT Credit Rules, 2004, which provides that when a manufacturer opts for exemption under a value-based notification after having taken CENVAT credit, credit attributable to inputs in stock, work-in-process or finished goods on the date of opting for exemption has to be dealt with in the manner prescribed and any remaining balance lapses. The appellant had crossed the SSI exemption limit, paid duty, and later again opted for exemption, but sought to utilise credit that had remained unavailed and unutilised. The Tribunal accepted the view that once the exemption regime was re-entered, the balance credit could not be carried forward for payment of duty and the demand, interest and penalty were therefore sustainable.

Conclusion: The appellant was not entitled to utilise the credit and the demand was upheld against it.

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