2011 (3) TMI 67 - HC - Central Excise

Cenvat Credit As per the Punjab and Haryana High Court in the case of CCE v. HMT (TD) Ltd. at paragraph 17 have held that when the input-credit legally taken and utilised on the dutiable final products need not be reversed on the final product becoming exempt subsequently - Only if any products are purchased subsequent to the said exemption and if any tax is paid on such inputs as the final product is exempted from payment of tax the assessee would not be entitled to avail the Cenvat credit on such inputs - But the Cenvat credit availed on such inputs till the date of exemption they vest in the assessee and the assessee cannot be divested of that credit as the law does not provide for the same Hence the authorities taking advantage of the Notification exempting the final product cannot claim reversal of Cenvat credit either in respect of final product which have come into existence on the date of the Notification or on the inputs stored in the godown or the work-in-progress and finished products Thus appeal is in favour of the assessee and against the revenue

Summary

Issues:
Challenge to Tribunal's order on Cenvat credit reversal for exempted tractors.

Analysis:
1. The appeal by the revenue contested the Tribunal's decision on Cenvat credit irreversibility for exempted tractors. The Tribunal ruled that legally taken Cenvat credit cannot be reversed even if the final product becomes exempt from duty, citing the Collector of Central Excise v. Dai Ichi Karkaria Ltd. judgment. The revenue demanded recovery of Rs. 2,09,84,356 from the assessee due to the exemption of tractors from duty.

2. The assessee, M/s. TAFE Limited, objected to the demand, but the adjudicating authority upheld it. The Tribunal, following the Dai Ichi Karkaria Ltd. case, allowed the appeal, stating that Cenvat credit need not be reversed for exempted final products if legally taken. The revenue challenged this decision, leading to the current appeal before the High Court.

3. The High Court framed the substantial question of law concerning the interpretation of Rule 3 of the Cenvat Credit Rules, 2002. The revenue argued that since tractors were exempted from duty, the Cenvat credit availed by the assessee on inputs used in manufacturing the exempted tractors should be reversed. They contended that the Tribunal erred in interfering with the adjudicating authority's order.

4. Referring to the Dai Ichi Karkaria Ltd. case, the High Court highlighted the Apex Court's interpretation that once Cenvat credit is legally taken and utilized on dutiable final products, it need not be reversed if the final product becomes exempt subsequently. The Court emphasized that the law does not provide for the reversal of Cenvat credit legally availed on inputs used before the exemption date, even if the final product is exempted from duty. Therefore, the Tribunal's decision was upheld, and the substantial question of law was answered in favor of the assessee.

5. The High Court also cited the Punjab and Haryana High Court's judgment in a similar case, emphasizing that legally taken input credit on dutiable final products need not be reversed upon subsequent exemption. The Court reiterated that the Cenvat credit availed on inputs until the exemption date remains with the assessee, and authorities cannot claim reversal of such credit post-exemption. The judgment supported the Tribunal's decision against the revenue's appeal, confirming the irreversibility of Cenvat credit in this scenario.