1995 (5) TMI 156 - AT - Central Excise

Appellate Tribunal rules in favor of taxpayer on input credit utilization dispute

The Appellate Tribunal CEGAT, Madras held that the department's appeal seeking reversal of credit on inputs due to exemption of finished products was ... Modvat Credit Issues: Department's appeal against reversal of credit on inputs due to exemption of finished products.The judgment by the Appellate Tribunal CEGAT, Madras involved an appeal by the department against the order of the Collector of Central Excise (Appeals), Madras, dated 25-6-1991. The department contended that the respondents had taken credit on the duty of inputs and cleared the finished products. However, after the finished product became exempt from excise duty or was charged at nil rate, the department sought to reverse the credit taken on the inputs that were in stock at the time of availing the exemption. The department argued for the reversal of the credit. On reviewing the records and hearing both parties, the Tribunal found that the respondent was eligible to take credit on the inputs at the time it was taken. The Tribunal held that the impugned order was lawful and factual, as the credit on inputs was correctly utilized when taken, thereby dismissing the appeal.In a separate order by Member (T), it was noted that a similar matter had been previously decided by the Bench in another case. The ruling of the earlier cases was followed, emphasizing that the benefit of MODVAT Credit can be availed even if some inputs were still in stock when the finished product was exempted. The authorities were not entitled to ask for the reversal of MODVAT Credit or its recovery related to inputs in stock. The only recourse for the authorities was to recover duty on inputs still in stock as per Rule 57F.The Tribunal further elaborated on the issue by referencing previous decisions, including the case of Collector of Central Excise, Madras v. M/s. Chennai Bottling Co. Ltd. The Tribunal emphasized that once MODVAT credit was correctly taken and utilized for paying duty on finished products, the recovery of utilized MODVAT credit was not warranted. The Tribunal highlighted that there was no direct correlation between input and output under the MODVAT scheme, and the credit formed part of a resource pool for duty payment on finished products. The Tribunal reiterated that the revenue should demand duty on inputs in stock when they were utilized in the factory, rather than questioning the correctness of the credit utilization.The Tribunal addressed the argument regarding the ruling of the Larger Bench and clarified that the issue before the Larger Bench was different from the present case. The Tribunal emphasized that the recovery of duty in cases of inputs in stock was previously discussed and upheld in various rulings. It was concluded that the interpretation of Rule 57F, allowing duty recovery on inputs cleared for home consumption, was consistent with the opinion tentatively expressed by the Larger Bench. Therefore, the Tribunal found no reason to deviate from its earlier decisions and dismissed the appeal, upholding the lower authority's order. Additionally, a cross objection was dismissed as not maintainable in law, and the appeal was ultimately dismissed based on the precedents and rulings cited.