1996 (4) TMI 340 - AT - Central Excise

Decision Upheld: Modvat credit on aerated water cannot be reversed once utilized

The Tribunal upheld the Collector (Appeals)'s decision, ruling that Modvat credit taken and utilized by the respondents before the withdrawal of the ... Modvat Issues Involved:1. Reversal of Modvat credit on inputs when the final product is removed from the specified category.2. Interpretation of Rule 56A and Rule 57A of the Central Excise Rules.3. Validity of credit taken and utilized before the withdrawal of Modvat facility.4. Applicability of judgments in similar cases to the present case.Detailed Analysis:1. Reversal of Modvat credit on inputs when the final product is removed from the specified category:The primary issue revolves around whether Modvat credit, once taken, can be reversed if the input is subsequently deleted from the specified categories. The Collector (Appeals) held that there is no provision in Rule 56A or under the Modvat rules authorizing the Revenue to demand back the credit once utilized for payment of duty without any irregularity. The Tribunal affirmed this view, stating that credit cannot be reversed if the input is later removed from the specified category, as long as the credit was correctly taken and utilized at the time of its allowance.2. Interpretation of Rule 56A and Rule 57A of the Central Excise Rules:The Tribunal examined Rule 56A and Rule 57A, noting that there is no provision for demanding back the credit once it has been correctly availed and utilized. The Tribunal referenced previous judgments, such as in the case of CCE v. Sundar Engineering Industries, where it was held that once Modvat credit is taken and there is no dispute about its use in the specified product, the credit cannot be reversed even if the input is later deleted from the specified categories under Rule 57A.3. Validity of credit taken and utilized before the withdrawal of Modvat facility:The Tribunal emphasized that the grant of credit should be based on the conditions prevailing at the time the inputs are brought into the factory. If there was no error or irregularity in the allowing of credit at that point, the credit does not become liable to be disallowed subsequently. This principle was upheld in cases like CCE v. Wipro Information Technology, where the Tribunal ruled that credit taken and utilized before the withdrawal of Modvat facility remains valid and cannot be reversed due to subsequent exemptions or changes in the status of the final product.4. Applicability of judgments in similar cases to the present case:The Tribunal relied on several precedents to support its decision. For instance, in the case of C.C.E. v. Sri Sarvaraya Sugar (Bottling Unit) Ltd., it was held that once credit is taken and utilized as per the law, it cannot be reversed later due to changes in the Modvat scheme. Similarly, in Tripty Drinks (P) Ltd. v. C.C.E., the Tribunal held that there is no provision under the Modvat rules for recovering credit if the inputs received before the withdrawal of the Modvat facility remain unutilized. These judgments reinforced the principle that the right to credit, once acquired, cannot be retrospectively nullified unless explicitly provided by statutory provisions.Conclusion:The Tribunal upheld the Collector (Appeals)'s order, affirming that there was no legal basis for reversing the Modvat credit taken and utilized by the respondents before the withdrawal of the Modvat facility on aerated water. The appeals were rejected, and the impugned order was upheld, aligning with the established legal precedents and the interpretation of relevant rules.