2024 (12) TMI 836 - AT - Central Excise

CENVAT credit reversal mandatory when opting for SSI exemption under Rule 11(2)

CESTAT Bangalore upheld the demand for reversal of CENVAT credit of Rs.3,47,656/- and Education Cess of Rs.6,953/- when appellant opted for SSI exemption ... Reversal of CENVAT credit lying in stock as on 01.04.2005 when the appellant opted for SSI exemption - cenvat credit on returned goods for reconditioning - Applicability of Notification No.8/2003 dated 01.03.2003 for exemption from duty - HELD THAT:- The relevant provisions of Rule 11 (2) of the Cenvat Credit Rules reads “who has been taking CENVAT credit on inputs or input services before such option is exercised, shall be required to pay an amount equivalent to the CENVAT credit, if any, allowed to him in respect of inputs lying in stock or in process or contained in final products lying in stock on the date when such option is exercised”, thus clearly stating that once the appellant opts for SSI exemption Notification, cenvat credit in respect of inputs lying in stock or in-process or contained in products lying in stock needs to be reversed. As seen from Rule 16 of Central Excise Rules, 2001, the cenvat credit taken on the returned goods (finished goods) is equivalent to taking credit on the inputs as the returned goods are deemed to be inputs. Therefore, the Commissioner (Appeals) was right in demanding the cenvat credit lying in stock as on 01.04.2005. The original authority had observed that the appellant had cleared 45 stabilizers valued at Rs.11,80,134/- were cleared by them on payment of duty of Rs.1,88,821/- and Education Cess of Rs.3,776/- after crossing the SSI exemption limit in the year 2005-2006, which is also claimed by the appellant in their grounds of appeal. These goods were lying in stock at the time of opting for exemption under the SSI Notification. Hence, this is of no relevance because, the credit lying in stock on the returned goods had to be reversed in terms of the SSI Notification read with Rule 11 of the Cenvat Credit Rules, 2004. The impugned order confirming the demand of cenvat credit of Rs.3,47,656/- and Education Cess of Rs.6,953/- under Section 11A of the Central Excise Act, 1944 along with interest is upheld - Appeal dismissed. Issues:1. Availment of cenvat credit on returned goods for reconditioning.2. Applicability of Notification No.8/2003 dated 01.03.2003 for exemption from duty.3. Reversal of cenvat credit on goods cleared under exemption.4. Interpretation of Rule 16 of Central Excise Rules and Rule 11 of Cenvat Credit Rules.Analysis:Issue 1: Availment of cenvat credit on returned goods for reconditioningThe appellant, engaged in manufacturing electronic equipment, availed cenvat credit on inputs used in the manufacture of stabilizers. Rule 16(1) of the Central Excise Rules allowed cenvat credit on returned goods for reconditioning. The dispute arose when the appellant opted for the benefit of Notification No.8/2003 dated 01.03.2003 and had to reverse cenvat credit on stabilizers lying in stock. The department contended that the entire credit on 92 stabilizers should be reversed, while the appellant argued that only the credit on inputs contained in the stabilizers cleared under exemption needed reversal.Issue 2: Applicability of Notification No.8/2003 dated 01.03.2003 for exemption from dutyThe appellant opted for exemption under Notification No.8/2003 dated 01.03.2003 after crossing the one crore limit. The notification specified that cenvat credit is not allowed once goods are cleared without payment of duty under the SSI exemption. The appellant claimed that they cleared stabilizers under full exemption after reconditioning, and only the credit on inputs of these cleared stabilizers needed to be reversed.Issue 3: Reversal of cenvat credit on goods cleared under exemptionThe Commissioner (Appeals) held that under Rule 11(2) of the Cenvat Credit Rules, cenvat credit on inputs lying in stock or contained in final products needed to be reversed when opting for exemption. The appellant's argument that only the credit on inputs of stabilizers cleared under exemption should be reversed was rejected, leading to a confirmed demand for cenvat credit and Education Cess under Section 11 of the Central Excise Act, 1944.Issue 4: Interpretation of Rule 16 of Central Excise Rules and Rule 11 of Cenvat Credit RulesRule 16 of the Central Excise Rules allowed cenvat credit on returned goods for reconditioning, deeming them as inputs. Rule 11(2) of the Cenvat Credit Rules mandated the reversal of cenvat credit on inputs lying in stock or contained in final products when opting for exemption. The Commissioner (Appeals) upheld the demand for cenvat credit reversal based on these rules, dismissing the appellant's claim regarding the credit reversal only on inputs of stabilizers cleared under exemption.In conclusion, the appeal was dismissed, and the demand for cenvat credit reversal along with Education Cess under Section 11 of the Central Excise Act, 1944 was upheld based on the interpretation of relevant rules and notifications.