2015 (7) TMI 1207 - AT - Central Excise

Reversal of CENVAT credit - It has been alleged that the appellants were having loose stock inputs of finished products as on 1-3-2005 on which they have availed Cenvat credit, but they have cleared subject goods at nil rate of duty without reversing the Modvat credit availed by them - Held that - the input credit legally taken and utilized on the dutiable final products need not be reversed on the final product becoming exempt subsequently with effect from 1-3-2005 - credit allowed - penalty set aside - appeal allowed - decided in favor of assessee.

Summary

Issues:
Appeal against demand of Cenvat credit on inputs availed by the appellants lying in stock as of 1-3-2005.

Analysis:
The appellants were involved in manufacturing excisable goods classified under Chapter 15 and 38 of the Central Excise Tariff Act, 1985. Some products were exempted from duty starting 1-3-2005 per Notification No. 4/2005-C.E. The appellants availed Cenvat credit on inputs in stock as of 1-3-2005. Show cause notices were issued, directing them to reverse the credit. The Adjudicating authority confirmed the demand along with interest and penalty, a decision upheld by the Commissioner (Appeals).

Upon review, it was noted that a show cause notice proposed disallowing Cenvat credit wrongly availed amounting to Rs. 40,85,434. The appellants were alleged to have cleared goods at nil duty without reversing the Modvat credit. The appellants cited precedent cases like HMT v. CCE, Panchkula and CCE, Meerut v. APCO Pharma Ltd., which supported their position. The Revenue's representative argued that the Tribunal's decision in M/s. Ranbaxy Laboratories Ltd. contradicted the Larger Bench's ruling. However, the Himachal Pradesh High Court had set aside the decision in the Ranbaxy case.

The Tribunal referred to the decision in the case of TAFE Ltd. v. CCE, Bangalore, which supported the appellants' position. Consequently, the Tribunal held that legally taken input credit on dutiable final products need not be reversed when the final product becomes exempt. The Tribunal set aside the penalty based on the Larger Bench's decision, concluding that the issue had been adequately addressed.

In light of the above analysis and the precedent set by the Larger Bench, the appeals were disposed of, and the penalty was overturned. The case was referred to the Regular Bench for final disposal based on the findings of the Larger Bench.