2007 (2) TMI 40 - AT - Central Excise

Cenvat/Modvat Department contended that appellant not eligible for credit on good lying in stock and required to be reversed Authority decided that appellant were required to reversed back alongwith interest on delay period.

Summary

Issues:
Whether the appellants were entitled to take Cenvat credit on inputs lying in stock as on 9-7-2004 and inputs contained in finished tractors on that date.

Analysis:

1. The appellants, manufacturers of tractors, availed Modvat/Cenvat credit on inputs used before the goods were exempted from duty. The department sought to recover the credit taken by issuing a show-cause notice under Cenvat Credit Rules, 2004. The dispute centered on Rule 6 of the CCR, which disallowed credit on inputs used for exempted goods. The Commissioner ordered recovery and imposed a penalty, leading to the present appeal.

2. The main issue was whether the appellants could retain the Cenvat credit on inputs. The appellants relied on previous case law and argued that credit should not be reversed if utilized before goods became exempt. The department cited a different Tribunal decision and Supreme Court judgments to support reversal of credit on exempted goods.

3. The Tribunal analyzed the conflicting views and applied the doctrine of merger. It held that the credit on inputs used for exempted final products was recoverable, following the decision in Albert David Ltd. case affirmed by the Supreme Court. The credit taken on inputs and final products lying in stock as on 9-7-2004 was deemed reversible or recoverable.

4. The Tribunal rejected the appellants' argument based on the Dai Ichi Karkaria case, emphasizing the binding effect of the Albert David decision. It concluded that the credit on inputs and final products was liable to be reversed or recovered if unutilized. Interest under Section 11AB of the Central Excise Act was payable from the relevant date.

5. The Tribunal upheld the demand for credit reversal but vacated the penalty, considering the dispute as an interpretation of Modvat/Cenvat Credit Rules based on judicial precedents. The appeal was disposed of accordingly, with the operative part of the order pronounced on 1-2-2007.