TaxTMI 
TaxTMI 
2012 (4) TMI 369
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....estic and international market. For substantial expansion, appellants set up a unit within the State of Himachal Pradesh to avail the benefit of exemption on finished goods under Notification No.50/2003-CE dated 10.1.2005. Declaration in that regard was filed by the appellants with the Central Excise Division, on 10.1.2005. Appellants took cenvat credit on inputs procured prior to 10.1.2005 and utilized the same for discharging excise duty on the finished goods. Out of the inputs procured prior to 10.1.2005, some stock of inputs were lying with them as on 10.1.2005. With respect to these inputs appellants did not reverse the proportionate cenvat credit since at the time when these inputs were procured, cenvat credit was validly taken and utilized. 3. On 21.11.2005 a show cause notice was issued by the Revenue with respect to the inputs lying in stock as on 10.1.2005. As per the Revenue, appellants wrongly took cenvat credit. Appellants responded to the same. The Commissioner of Central Excise, Chandigarh adjudicated the matter and vide its order dated 17.11.2006 confirmed the demand and additionally imposed penalty in the following terms:- "In view of the discussion and findi....
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.... i.e. Rule 57 of Modvat credit under Central Excise Rules, 1944 and Rule 9(2) of the Cenvat Rules, as interpreted by the Apex Court in Collector of Central Excise, Pune and others vs. Dai Karkaria Ltd. and others, 1999 (7) SCC 448, the Division Bench of this Court specifically held that even though final product may be exempt from payment of excise, the assessee cannot be asked to reverse the Modvat credit already taken by it. The substantial question of law was answered in favour of assessee as against the Revenue. 10. Subsequently, the very same view stands reiterated by another Division Bench of this Court in Saboo Alloys Pvt. Ltd. (supra), wherein also the following substantial question of law was involved and assessee's similar plea accepted:- "Whether a manufacturer is required to reverse the Cenvat Credit taken by him in respect of inputs which are proved to have been used in the manufacture of goods which are exempted from excise duty in view of the provisions of Rule 6(1) of Cenvat Credit Rules, 2004 which provide that no credit can be taken in respect of inputs which are used in the manufacture of exempted goods." 11. In the impugned order, the Appellate Authorit....
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....t of the duties paid on the inputs used in the manufacture of final products. The final product was exempted from payment of duty vide notification No.16/96-CE dated 23.7.96. Therefore, the notice was issued requiring the assessee to reverse the credit of Rs.93,584/-. The assessee contested this notice on the ground that once the credit has been taken, the same cannot be dis-allowed since in the books it had already been used and there was no legal provision which provided for recovery of such credit. It was further contended that Rule 57C places a bar on taking credit of inputs used for the manufacture of final product exempted from duty. However, as per the assessee, this Rule comes into operation only after the date when the final product is exempted and there was no legal provision requiring it to reverse the credit which it had taken prior to the date of the issuance of the exemption notification. The Assistant Commissioner did not accept the plea of the assessee and disallowed credit of Rs.93,584/-. The assessee filed an appeal and the Commissioner (Appeals) upheld the order of the Assistant Commissioner. Thereafter, the assessee approached the Customs, Excise & Service Ta....
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....it is available to the manufacturer without any limitation in time or otherwise unless the manufacturer itself chooses not to use the raw material in its excisable product. The credit is, therefore, indefeasible. It should also be noted that there is no co-relation of the raw material and the final product; that is to say, it is not as if credit can be taken only on a final product that is manufactured out of the particular raw material to which the credit is related. The credit may be taken against the excise duty on a final product manufactured on the very day that it becomes available." Rule 9(2) of the Cenvat Rules reads as follows:- "A manufacturer who opts for exemption from the whole of the duty of excise leviable on goods manufactured by him under a notification based on the value or quantity of clearances in a financial year, and who has been taking of cenvat credit on inputs before such option is exercised, he 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 final products lying in stock on the date when such option is exercised and after deducting the said amoun....
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....verse the Modvat credit already taken by it." 15. Thus the findings rendered by the authorities are perverse and against the settled principles of law. 16. Further our attention has been invited to the decision rendered by the Division Bench of High Court of Karnataka in CEA No. 82 of 2007, titled as Commission of Central Excise, vs. M/s Tape Limited (Tractor Division), wherein it has been held that once the input credit is legally taken and utilized on the dutiable final product, it need not be reversed on the final product being exempted subsequently. However, if products are purchased subsequent to the said exemption and if any tax is paid on such inputs, as the final product is exempted from payment of tax, the assessee would not be entitled to avail the Cenvat credit on such inputs. But the Cenvat credit availed on such inputs till the date of exemption, vest in the assessee and the assessee cannot be divested of that credit as the law does not provide for the same. The Court further held that Revenue cannot take advantage of the notification exempting the final product and claim reversal of Cenvat credit either in respect of final product which have come into existence ....