2009 (12) TMI 125 - HC - Central Excise

Manufacturer entitled to retain Cenvat credit despite excise duty exemption. Precedents support credit retention.

The High Court held that despite the final product's exemption from excise duty, the manufacturer was not required to reverse the Cenvat credit already ... Cenvat Credit- Notification No. 50/2003-CE, dated 10.6.2003- The assessee was engaged in the manufacture of S.S. Ingots/flats. It was taking cenvat credit of excise duty paid on inputs used in the manufacture of final product. On 11.4.2005, the assessee opted for the benefit of the exemption Notification No. 50/2003-CE, dated 10.6.2003 and, thereafter, the final product was exempted from excise duty. In view of this the revenue sought to reverse the benefit of Cenvat Credit taken on raw material/inputs. On appeal, the first appellate authority held that the Cenvat credit taken by the assessee was not required to be reversed. He accordingly upheld the assessee’s claim. The Tribunal upheld the order of first appellate authority order. In the light of the decision of CCE v. Dai Karkaria Ltd. 1999 (7) SCC 448, held that- even though the final product of the assessee might be exempted from payment of excise duty, the assessee could not be asked to reverse the cenvat credit already taken by it. Thus the appeal of the revenue is liable to be dismissed. Issues:Whether a manufacturer is required to reverse the Cenvat Credit taken in respect of inputs used in the manufacture of goods exempted from excise duty.Analysis:1. The main issue in this case revolves around the requirement for a manufacturer to reverse the Cenvat Credit taken when the final product is exempted from excise duty. The appellant argued that Rule 9(2) of the Cenvat Rules was not considered by the authorities below.2. The appellant, engaged in manufacturing S.S. Ingots/Flats, had obtained Cenvat credit on inputs used in the final product. Upon opting for an exemption notification, the final product became exempt from excise duty, leading to a reversal of modvat credit. The appellant claimed a refund, contending that the credit on inputs purchased before opting for the exemption was not required to be reversed, which was rejected by the Assessing Officer.3. The appellant's appeal was accepted, but the revenue challenged it at the CESTAT, citing the decision in CCE, Rajkot v. Ashok Iron & Steel Fabricators, where it was held that there was no rule allowing the department to seek reversal of Modvat credit. The appellant relied on Rule 9(2) of the Cenvat Rules, emphasizing the absence of a provision for credit reversal in such cases.4. Reference was made to a similar issue addressed by the Apex Court in Collector of Central Excise, Pune v. Dai Karkaria Ltd., where the Court clarified the rules regarding reversal of Modvat credit under the Central Excise Rules, emphasizing the indefeasibility of validly taken credit unless illegally obtained. The Court highlighted that credit can be utilized without time limitations unless the manufacturer chooses not to use the raw material in production.5. The judgment of the Kerala High Court in Collector of Central Excise and Custom v. Premier Tyres Ltd. supported the appellant's position, aligning with the Apex Court's interpretation. Additionally, the High Court of Rajasthan in Hindustan Zinc Ltd. v. Union of India upheld a similar decision, emphasizing that the entitlement to credit legally arises before the goods' clearance at a nil rate due to exemption.6. The High Court of Himachal Pradesh concurred with the judgments of the Kerala and Rajasthan High Courts, concluding that the interpretation given by the Apex Court in a similar context must apply in the present case. Consequently, despite the final product's exemption from excise duty, the appellant was not obligated to reverse the Modvat credit already availed. The appeal was dismissed in favor of the assessee.