2002 (1) TMI 91 - AT - Central Excise

Appeal dismissed: Supreme Court precedent requires recovery of input tax credit when final product later becomes exempt

CEGAT, New Delhi dismissed the appellant's appeal, holding that the tribunal is bound by the Supreme Court's decision in Dai Ichi Karkaria Ltd. and ... Modvat of reversal of credit - final products become exempt from duty - whether credit availed and utilised under the Modvat Scheme during the period when the final products were dutiable is required to be reversed when subsequently the final product is exempted from duty - HELD THAT:- On appeal by the assessee, Commissioner (Appeals) took a different view. According to him, the assessee is entitled to claim refund in respect of the credit which they had already utilised while clearing their final product at a time when it was dutiable. He took the view that there is no provision in law to recover the credit of duty on inputs which has been availed and utilised at the material time in the clearance of final product. He placed reliance on the decision of the Supreme Court in Eicher Motors Ltd. v. Union of India [1999 (1) TMI 34 - SUPREME COURT] and certain other decisions. We find no reference in this order to the decision of the Allahabad High Court in Super Cassettes Industries Ltd. or to the decision of the Larger Bench of this Tribunal in Khanbhai Essoofbhai[1998 (11) TMI 141 - CEGAT, NEW DELHI]. It is true that the decision of the Kerala High Court in Premier Tyres Ltd. [2001 (2) TMI 137 - HIGH COURT OF KERALA AT ERNAKULAM] case was after the appellate order but the decision of the Supreme Court in Dai Ichi Karkaria Ltd. [1999 (8) TMI 920 - SUPREME COURT (LB)] which was rendered as early as on 11-8-99 is not seen placed before the appellate authority. We are not informed that a later decision of the Supreme Court has taken a different view from Dai Ichi Karkaria Ltd. In view of the above, we are bound by the dictum laid down by the Suprme Court in Dai Ichi Karkaria Ltd. Since the issue is now covered directly by a decision of the Apex Court, we find it not necessary to place the matter before a Bench of 7 Members even though a Bench of 5 Members has taken a contra view in Khanbhai Esoofbhai. We dismiss the appeal. Issues involved: Conflict of decisions between High Courts regarding the reversal of credit availed under the Modvat Scheme when final products become exempt from duty.Summary:The appeal was referred to the Larger Bench due to conflicting decisions of Allahabad High Court and Kerala High Court regarding the reversal of credit under the Modvat Scheme. The main issue was whether credit availed and utilized under the Modvat Scheme during the period when final products were dutiable should be reversed when the final product is subsequently exempted from duty. The respondent had reversed the credit amount but later claimed a refund, which was rejected by the adjudicating authority. The Commissioner (Appeals) allowed the refund, citing the absence of a provision in law to recover the credit of duty on inputs already utilized for dutiable products. The Allahabad High Court held that Modvat credit is provisional until final products are cleared, while the Kerala High Court ruled that no reversal is needed if final products were not exempted at the time of availing credit. The Supreme Court clarified that once credit is validly taken, it is indefeasible and can be used without limitation in time unless the manufacturer chooses not to use the raw material in the excisable product.The Departmental Representative argued for the reversal of credit even if the final product was exempted, citing various Supreme Court decisions. However, the Tribunal held that these decisions did not address the specific issue at hand. Given the clarity provided by the Supreme Court in a previous case, the Tribunal dismissed the appeal without the need for a larger bench, despite a previous contrary view by a five-member bench. The decision was based on the principle that validly taken credit is indefeasible unless utilized illegally or irregularly.