2018 (6) TMI 126 - AT - Central Excise

Tribunal allows Cenvat credit on inputs used for export, overturns denial.

The Tribunal ruled in favor of the appellant, setting aside the denial of Cenvat credit on inputs used in export and the imposition of interest and ... CENVAT credit - inputs used in the export - manufacturing goods chargeable to nil duty - finished goods were chargeable earlier which later on became exempted - Held that:- Admittedly, in the case in hand, the goods which became exempted has been exported by the appellant, therefore, the appellant is not required to reverse the Cenvat credit in terms of Rule 11. Similar view has been taken by the Hon’ble Himachal Pradesh High Court in the case of CCE vs. Drish Shoes Limited [2010 (5) TMI 334 - HIMACHAL PRADESH HIGH COURT] wherein Hon’ble High Court has held that an assessee, manufacturing goods chargeable to nil duty, is eligible to avail CENVAT credit paid on the inputs under the exception clause to Rule 6(1), as contained in Rule 6(5) of CENVAT Credit Rules, 2002 and Rule 6(6) of CENVAT Credit Rules, 2004, used in the manufacture of such goods, if the goods are exported. Appeal allowed - decided in favor of appellant. Issues:Appeal against denial of Cenvat credit on inputs used in export, imposition of interest and penalty.Analysis:Issue 1: Denial of Cenvat Credit on Inputs Used in ExportThe appellant, a manufacturer of bulk drugs and exempted goods, availed Cenvat credit on inputs used in manufacturing final products. The dispute arose when the Revenue alleged inadmissible Cenvat credit on inputs used in manufacturing exempted goods. The appellant argued that Menthol and Menthol Crystals were exempted from duty only in March 2008, while other products were still excisable. The appellant contended that Rule 11 should be read in conjunction with Rule 6 of the Cenvat Credit Rules, asserting that Rule 11 does not override the benefits conferred by other rules. The Tribunal referred to previous cases and held that Cenvat credit on dutiable goods used for both dutiable and exempted products for export was admissible. The appellant's execution of a bond further supported their claim, as per Rule 6(6). The Tribunal found no merit in the denial of Cenvat credit and set aside the impugned order.Issue 2: Imposition of Interest and PenaltyThe proceedings initiated against the appellant included imposition of interest and penalty under Rule 15 of Cenvat Credit Rules read with Section 11AC of the Act. The appellant's counsel argued that the appellant was not required to reverse Cenvat credit for goods cleared for export under bond, as accepted by the jurisdictional Assistant Commissioner. Referring to a specific case precedent, the Tribunal affirmed that Rule 11(3)(ii) is a transitional provision and does not override other beneficial provisions of the Cenvat Credit Rules. The Tribunal noted that the goods in question were exported, and thus, the appellant was not obligated to reverse the Cenvat credit. Citing a judgment by the Himachal Pradesh High Court, the Tribunal concluded that the appellant, having exported the exempted goods, was eligible to avail Cenvat credit on inputs used in manufacturing those goods. Consequently, the Tribunal set aside the imposition of interest and penalty, allowing the appeal with consequential relief.In conclusion, the Tribunal found in favor of the appellant, holding that the denial of Cenvat credit on inputs used in export and the imposition of interest and penalty were unjustified. The judgment emphasized the interplay between different rules under the Cenvat Credit regime and established that the appellant's actions were in compliance with the relevant provisions.