2006 (8) TMI 70 - AT - Central Excise

Cenvat/Modvat Demand reversal of credit availed on input which is under work in progress Value of Work in progress stock found to be nil from documents Demand of credit on work in progress not sustainable

Summary

Issues:
Appeal against Order-in-Appeal No. 8/2006-C.E. dated 31-1-2006 regarding reversal of Cenvat credit on inputs when opting out of the Cenvat scheme for SSI exemption under Notification No. 8/2003-C.E. dated 1-3-2003.

Analysis:
The appeal and stay application were filed against the Order-in-Appeal No. 8/2006-C.E. dated 31-1-2006, concerning the reversal of Cenvat credit on inputs upon opting out of the Cenvat scheme for the SSI exemption under Notification No. 8/2003-C.E. dated 1-3-2003. The Department demanded amounts under Section 11A of the Central Excise Act, along with penalties and interest, claiming a work-in-progress value of Rs. 12,74,726/- and credit involved of Rs. 2,03,956/-. The appellants argued that the demand was unsustainable, citing Rule 9(2) of the Cenvat Credit Rules, 2002, which they believed rendered the demand improper. The Commissioner (Appeals) upheld the original order, leading to the appellants challenging the decision.

Advocates for both parties appeared, with the appellants contending that the demand for duty on work-in-progress was erroneous as the Department used figures from 31-3-2003 instead of 31-3-2004. They argued that the work-in-progress as of 31-3-2004 was 'nil,' contrary to the Department's claim. The appellants highlighted a previous Show Cause Notice and Tribunal's Stay Order, asserting the Commissioner (Appeals) wrongly dismissed their contentions. They claimed that demanding duty on non-existent work-in-progress was legally untenable, and the impugned order should be set aside.

Upon careful review of the case records, it was found that the show cause notice presumed a value of in-process goods as of 31-3-2004, which was later proven to be 'nil.' When opting out of the Cenvat Scheme for SSI exemption, the appellants would not be able to utilize any Modvat credit, and the balance would lapse as per Rule 9(2) of Cenvat Credit Rules, 2002. Therefore, the demand for duty equal to the credit in in-process material was deemed unwarranted, especially when the value of in-process material was 'nil' as of 31-3-2004. Consequently, the appeal and stay application were allowed with consequential relief, overturning the previous decisions.