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2011 (8) TMI 593 - HC - Central ExciseReversal of Cenvat Credit - Assessee manufacturer of packet tea - took credit of input goods till 27 feburary 93 from next day final product became exempted - Show cause issued demanding reversal of cenvat credit - Assesssee replied since credit was taken when final product was dutiable thus reversal is unjustified - Held That - MODVAT credit taken in respect of inputs will have to be reversed when final product becomes exempt at a date subsequent to the receipt of inputs. Reliance placed on Super Cassettes Industries Ltd. (1997 - TMI - 44650 - HIGH COURT OF JUDICATURE AT ALLAHABAD). Decided against assessee. Extended period of limitation - Held That - In view of the decision in Calcom Electronics Pvt. Ltd. v. CCE (2000 - TMI - 49978 - CEGAT, COURT NO. II, NEW DELHI), credit of duty utilised in the manufacture of exempted goods is required to be reversed without any reference of time limit, and that Show Cause Notice even after six months is not time barred having regard to the language of Rule 57-I (2). - Decided against assessee.
Issues Involved:
1. Whether MODVAT credit can be lawfully taken if the end product becomes exempt from the payment of duty. 2. Whether the extended period of limitation under Rule 57-I(1)(ii) can be invoked without allegations of fraud, misstatement, collusion, or suppression with an intent to evade duty. Issue-wise Detailed Analysis: 1. MODVAT Credit on Exempt Final Products: The court considered whether MODVAT credit taken on inputs could be retained if the final product becomes exempt from duty. The Applicant argued that MODVAT credit lawfully taken under Rule 57-A should not be reversed even if the final product later becomes exempt. They cited the Supreme Court's decision in *Collector of Central Excise, Pune v. Dai-Ichi Karkaria Ltd.*, which held that lawfully taken MODVAT credit is indefeasible. However, the court referred to the Tribunal's reliance on the judgment in *Super Cassettes Industries Ltd. v. Union of India*, which stated that retaining MODVAT credit when the final product becomes exempt would amount to unjust enrichment. The court noted that Rule 57-C explicitly prohibits credit if the final product is exempt from duty. The court also acknowledged the Tribunal's interpretation that credit must be reversed if the final product becomes exempt after the inputs are received. The court concluded that allowing MODVAT credit on inputs when the final product becomes exempt would result in unjust enrichment. Therefore, the first issue was resolved against the Applicant, affirming that MODVAT credit must be reversed when the final product becomes exempt. 2. Extended Period of Limitation: The Applicant contended that the extended period of limitation under Rule 57-I(1)(ii) could not be invoked without allegations of fraud, misstatement, collusion, or suppression with an intent to evade duty. They argued that the Show Cause Notice was issued beyond the six-month period and was thus time-barred. The court, however, referred to the Tribunal's decision, which held that the credit of duty utilized in the manufacture of exempted goods must be reversed without reference to the time limit. The court noted that Rule 57-I(2) allows for the recovery of credit without any time limitation in such cases. The court distinguished the present case from those cited by the Applicant, where limitation was applied due to allegations of willful misstatement or suppression. In conclusion, the court found that the extended period of limitation could be invoked without allegations of fraud or suppression, as the case involved the reversal of MODVAT credit due to the final product becoming exempt. Thus, the second issue was also resolved against the Applicant. Final Judgment: The court directed that the department may proceed in accordance with the law, affirming the Tribunal's decision to reverse the MODVAT credit and rejecting the Applicant's contentions on both issues.
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