2020 (6) TMI 59 - AT - Central Excise

Conditional Exemptions Do Not Lapse: Tribunal Upholds Manufacturer's Position

The Tribunal held that the lapsing of balance credit is not applicable in cases of conditional exemptions, as in the present scenario where a manufacturer ... Lapse of CENVAT Credit - exemption Notification No. 30/2004-CE dated 09.07.2004 w.e.f. 1st April, 2016 - HELD THAT:- On the plain reading of the above Rule 11 (3) (i) (ii), it is clear that as per sub-clause (2), the credit shall be lapsed only if the exemption under the Notification is absolute that means in case of conditional Notification the provision of lapsing of credit will not apply. In the case of PATODIA FILAMENTS PVT LIMITED VERSUS COMMISSIONER OF CENTRAL EXCISE & ST, DAMAN [2019 (8) TMI 201 - CESTAT AHMEDABAD] where it was held that In the present case all the conditions enumerated under sub rule 3 (i) has been followed by the Appellant and he is not required to reverse the entire credit lying in balance on the date of opting notification No. 30/2004–CE dated 09.07.2004. Therefore, the balance credit is not liable to be reversed. For the same reason the credit utilised by him for clearance of finished goods or capital goods. It is settled that after reversal of credit in respect of input, input in process and input contained in final products whatever balance is left shall lapse only when the Notification is unconditional. Appeal dismissed - decided against Revenue. Issues:1. Whether lapsing of balance credit is applicable when opting for exemption under a specific notification.2. Interpretation of Rule 11 (3) (ii) of the Cenvat Credit Rules, 2004.3. Application of various judgments in determining the lapsing of balance credit.Analysis:1. The case involved a dispute regarding the lapsing of balance credit by a manufacturer of polyester yarn under Chapter 55 of the Central Excise Tariff Act, 1985, who opted for exemption under Notification No.30/2004-CE. The issue was whether the balance credit would lapse even after the reversal of Cenvat Credit, as proposed in a show cause notice by the adjudicating authority.2. The Tribunal considered Rule 11 (3) (ii) of the Cenvat Credit Rules, 2004, which mandates the lapsing of balance credit if the final product has been exempted absolutely under Section 5A of the Act. The Revenue argued for the lapsing based on this rule, citing a previous Tribunal judgment. However, the respondent contended that the lapsing of credit applies only to absolute exemptions, not conditional ones like the one under Notification No.30/2004-CE.3. The Tribunal analyzed various judgments, including Jansons Taxtile Processors, Patodia Filaments Pvt. Ltd., Kanchan India Ltd., and others, which supported the view that lapsing of balance credit is not applicable when the exemption notification is conditional. The Tribunal emphasized that the balance credit shall lapse only if the exemption is absolute, as per Rule 11 (3) (ii), and not in cases of conditional exemptions. The judgments provided a clear interpretation of the rule and established a consistent precedent in similar cases.4. The Tribunal distinguished the case relied upon by the Revenue and clarified that the issue of eligibility for exemption under Notification No.30/2004-CE was not the subject matter of the appeal. Additionally, the Tribunal found that the judgment cited by the Revenue was not directly applicable to the present case and upheld the decision of the lower authority, dismissing the Revenue's appeal.In conclusion, the Tribunal held that the lapsing of balance credit is not applicable in cases of conditional exemptions, as in the present scenario, and dismissed the Revenue's appeal based on established legal interpretations and precedents.