2009 (3) TMI 846 - AT - Central Excise

Cenvat/Modvat - Appeal to Appellate Tribunal - whether reversal of Cenvat credit taker on cocoa beans and utilized in both the dutiable as well as exempted product after the clearance of the exempted product absolves the appellants of the liability to pay 10% of the total price of the exempted product in terms of Rule 6(3)(b) of the Cenvat Credit Rules, 2004?

Summary

Issues:
1. Consideration of reversal of Cenvat credit on cocoa beans used in both dutiable and exempted products.
2. Interpretation of Rule 6(3)(b) of the Cenvat Credit Rules, 2004 regarding payment obligations.
3. Applicability of Supreme Court judgments and High Court precedents in similar cases.

Issue 1: Reversal of Cenvat credit on cocoa beans

The appeal in question was filed against an Order-in-Original confirming a demand and penalty imposed by the Commissioner of Central Excise. The issue under consideration was whether the reversal of Cenvat credit on cocoa beans used in both dutiable and exempted products absolves the appellants from paying 10% of the total price of the exempted product as per Rule 6(3)(b) of the Cenvat Credit Rules, 2004. The appellants argued that since they had reversed the ineligible credit, they should not be liable to pay the amount under the said rule.

Issue 2: Interpretation of Rule 6(3)(b) of the Cenvat Credit Rules, 2004

The Show Cause Notice and the impugned order emphasized the requirement of reversing credit on inputs consumed in exempted products before the clearance of such goods to avoid the mandatory payment of 10% of the total price of exempted goods. The Revenue's view was supported by a Tribunal order in a similar case. However, conflicting judgments were cited, such as the Allahabad High Court's decision allowing credit reversal post-clearance and the Gujarat High Court's ruling permitting credit reversal at the Tribunal stage, even after goods were cleared.

Issue 3: Applicability of judicial precedents

The Tribunal noted the Hon'ble Allahabad High Court's decision and the High Court of Gujarat's ruling supporting the concept of credit reversal even after goods clearance. The learned Jt. CDR referred to a Supreme Court judgment regarding the conditions for exemption under a specific notification. The Tribunal ultimately set aside the Commissioner's order, concluding that the appellants' reversal of credit and payment of interest amounted to not taking the credit, as per the Allahabad and Gujarat High Court judgments, thereby absolving them from the 10% payment obligation.

In conclusion, the Tribunal allowed the appeal, highlighting the importance of the timing of credit reversal and payment obligations under Rule 6(3)(b) of the Cenvat Credit Rules, 2004. The decision was influenced by various judicial precedents, emphasizing the significance of proper credit management to avoid unnecessary financial liabilities.