2010 (10) TMI 1122 - HC - Central Excise

Whether in view of the provision of Rule- 3(2) and 6(1) of the Cenvat Credit Rule, 2002, the credit taken and utilized earlier in the inputs material by the manufacturer should be reversed or not if the same is used for manufacture of non-excisable goods? Held that - Tribunal has taken the correct view in the matter by applying law laid down by the Apex Court in the case of Collector of Central Excise, Pune Vs. Dai Ichi Karkaria Ltd. 1999 (8) TMI 920 - SUPREME COURT OF INDIA , which has been consistently followed in all other judgments, where it was held that In determining the cost of an excisable product covered by the Modvat scheme under Section 4(1)(b) of the Act read with Rule 6 of the Valuation Rules the excise duty paid on raw material also covered by the Modvat scheme is not to be included. Appeal dismissed - decided against Revenue.

Summary

Issues:
1. Reversal of Cenvat credit for inputs used in the manufacture of nonexcisable goods.
2. Reliance on a previous decision by the Tribunal.

Issue 1: Reversal of Cenvat Credit:
The appellant, a revenue entity, filed a Tax Appeal under Section-35G of the Central Excise Act, 1944, questioning the reversal of Cenvat credit for inputs used in the manufacture of nonexcisable goods. The respondent, engaged in applying Fusion Bonded Epoxy Coating on Reinforced Steel Bars, had availed Cenvat credit under Rule-3 of Cenvat Credit Rules, 2002. The respondent stopped paying duty on FBE Coated Bars after a CEGAT order stated that such coating did not amount to manufacture under the Central Excise Act. The respondent cleared FBE Coated Bars without duty payment after 31.7.2003, having availed Cenvat credit on inputs used. A show cause notice was issued, leading to an Order-in-Original holding the respondent liable to pay an amount equivalent to Cenvat credit on inputs in stock when duty payment ceased. The Tribunal's order was challenged, citing Rule-3 and Rule-6 of the Cenvat Credit Rules, 2002, which govern Cenvat credit reversal for inputs used in exempted products.

Issue 2: Reliance on Tribunal Decision:
The appellant contested the Tribunal's reliance on a decision in the case of M/s. H.M.T. Vs. CCE Panchkula, 2008, arguing that the facts differed from the present case. The CESTAT held that the law on the disputed issue was settled by the Larger Bench decision in H.M.T. case, stating that Cenvat credit taken correctly for dutiable final products need not be reversed if the final product becomes exempted later. The appellant argued for credit reversal based on Rule-6 of the Cenvat Credit Rules, 2002. The respondent relied on various High Court decisions supporting the maintenance of Cenvat credit even if final products become exempt from duty, emphasizing the validity of credit taken and maintained in separate accounts.

In conclusion, the High Court upheld the Tribunal's decision, stating that no substantial question of law arose. The Court affirmed the correctness of the Tribunal's view, aligning with the legal position established by the Apex Court in previous cases. The appeal was dismissed based on the consistent application of legal principles regarding Cenvat credit reversal for inputs used in the manufacture of subsequently exempted goods.