Excise duty on pre-levy stock and credit reversal for exemption: removal date and non-relatable CENVAT credit controlled the outcome.

Central excise duty was not payable on branded garments cleared before 01.03.2016, because the taxable event is removal from the factory or warehouse and later presence in retail outlets does not alter the point of levy. The concessional duty notification was also available, as CENVAT credit taken for the separate service business was not credit relatable to the manufacturing clearance in question; in any event, reversal of the disputed credit with interest was treated as equivalent to non-availment for exemption purposes. The duty demand was set aside, the concessional rate benefit was upheld, and consequential refund of the reversed credit amount with interest followed.

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Issues: (i) Whether central excise duty was payable on branded garments cleared before 01.03.2016 and lying in the assessee's retail outlets on the intervening night of 29.02.2016 and 01.03.2016. (ii) Whether the assessee was disentitled to the concessional duty notification on the ground that CENVAT credit had been taken in relation to its service business, and whether subsequent reversal of that credit restored the exemption.

Issue (i): Whether central excise duty was payable on branded garments cleared before 01.03.2016 and lying in the assessee's retail outlets on the intervening night of 29.02.2016 and 01.03.2016.

Analysis: Duty under the excise scheme is attracted on removal from the factory or warehouse, and the applicable rate is the one in force on the date of such removal. The goods in question had already been cleared before the levy and withdrawal of exemption took effect on 01.03.2016. Their later presence in retail outlets did not change the point of levy, because sale from the retail outlet is not the taxable event for central excise purposes.

Conclusion: The demand of excise duty on such stock was not sustainable and the assessee succeeded on this issue.

Issue (ii): Whether the assessee was disentitled to the concessional duty notification on the ground that CENVAT credit had been taken in relation to its service business, and whether subsequent reversal of that credit restored the exemption.

Analysis: The manufacturing activity and the service activity were distinct. Credit availed against taxable output services was not to be treated as credit taken for the manufacturing unit merely because the assessee carried on both activities. The condition in the notification was directed to credit relatable to the goods being cleared at concessional rate. In any event, reversal of the disputed credit with interest was treated as equivalent to non-availment of credit for the purpose of the exemption.

Conclusion: The assessee remained entitled to the concessional notification and the Revenue's challenge failed on this issue.

Final Conclusion: The duty demand on pre-01.03.2016 stock was set aside, the concessional rate benefit was upheld, and the assessee obtained consequential refund of the reversed credit amount with interest.

Ratio Decidendi: Excise duty is chargeable on removal from the factory or warehouse, and credit reversal with interest can amount to non-availment of credit for exemption conditions where the credit is not relatable to the manufacturing activity.

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