2009 (11) TMI 12 - HC - Central Excise

Manufacturer not obligated to refund excise duty credit on raw materials under Rule 9(2)

The High Court, after analyzing Rule 9(2) of the Cenvat Credit Rule 2002, ruled in favor of the assessee, stating that a manufacturer opting for small ... Cenvat Credit – Rule 9(2) – reversal of credit - whether a manufacturer who has obtained credit of the Central Value Added Tax paid by him in respect of the raw material and inputs lying in stock or in process or contained in the final product lying in stock is required to refund/repay the credit when the final product is exempted from excise – 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, we feel that the interpretation given by the Apex Court has to apply in the present case also and, therefore, even 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 – answered in favor of assessee Issues:Interpretation of Rule 9(2) of Cenvat Credit Rule 2002 regarding repayment of credit on exempted final products.Analysis:The case involved a dispute over whether a manufacturer who obtained credit of Central Value Added Tax on raw materials and inputs, and later opted for small scale industry (SSI) benefit exempting the final products from excise duty, was required to refund the credit. The appellant argued that Rule 9(2) of the Cenvat Rules mandates repayment of credit in such cases. The assessee contested this claim, citing precedents and the judgment of the Tribunal in a similar matter. The Commissioner (Appeals) ruled in favor of the assessee, stating that there was no obligation to reverse the credit upon opting out of the CENVAT Credit Scheme and availing the SSI benefit.The revenue appealed to the Tribunal, which rejected the appeal based on the Tribunal's earlier decision in a similar case. The appellant emphasized the Tribunal's ruling in a specific case where it was held that there was no rule allowing the department to seek credit reversal. The appellant also referred to a Supreme Court judgment regarding the reversal of Modvat credit under Central Excise Rules, highlighting the principle that validly taken credit is indefeasible unless illegally obtained.The High Court considered the language of Rule 9(2) of the Cenvat Rules and compared it to Rule 57H(5) of the Excise Rules, noting their identical nature. The Court referenced the judgments of the High Courts of Kerala and Rajasthan, which supported the assessee's position based on the Apex Court's interpretation of similar rules. The Court agreed with the Kerala and Rajasthan High Courts, concluding that even if the final product is exempt from excise duty, the manufacturer cannot be compelled to reverse the Modvat credit previously availed. Therefore, the Court ruled in favor of the assessee, dismissing the appeal with no costs awarded.