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2011 (10) TMI 38 - HC - Central ExciseArea Based Exemption - The assessee opted to avail nil rate of duty with effect from 8th April 2004 under the said Notification No. 50/2003. At that stage the assessee had already availed CENVAT credit under the Rules amounting to Rs. 4, 78, 260/- on inputs/work in progress/finished goods. - Assessee reversed the credit under the direction of superintendent and later filed a refund claim of the cenvat credit so reversed - held that - CENVAT credit which was validly availed at the time of the receipt of the inputs for the manufacture of the final product on which excise duty was payble but subsequently utilized for the manufacture of the same final product which became exempted from payment of excise duty pursuant to a subsequent notification was not liable to be reversed under Rule 6(1) of the CENVAT Credit Rules 2002. - Decided in favor of assessee.
Issues Involved:
1. Admissibility of CENVAT credit on inputs used in the manufacture of exempted goods. 2. Requirement to reverse CENVAT credit upon exemption of final product. 3. Entitlement to cash refund of CENVAT credit. Issue-wise Detailed Analysis: 1. Admissibility of CENVAT Credit on Inputs Used in the Manufacture of Exempted Goods: The core question was whether CENVAT credit availed on inputs utilized in the manufacture of goods exempted under Notification No. 50/2003-CE dated 10.06.2003 is admissible, notwithstanding Rule 6 of the CENVAT Credit Rules, 2002, which states that CENVAT credit shall not be allowed on inputs used in the manufacture of exempted goods. The Court noted that the CENVAT scheme is designed to eliminate the cascading effect of excise duty, allowing credit only if the final product is subject to excise duty. Rule 6(1) stipulates that credit is not allowed on inputs used for exempted goods, but the Court emphasized that this rule applies when inputs are received, not when the final product is manufactured. The Court held that if inputs were initially received for manufacturing a dutiable product, valid CENVAT credit taken cannot be reversed even if the final product later becomes exempt from excise duty. 2. Requirement to Reverse CENVAT Credit Upon Exemption of Final Product: The Court examined whether the reversal of CENVAT credit is necessary when the final product becomes exempt from duty due to a subsequent notification. The Court referred to Rule 9(2) of the CENVAT Credit Rules, which mandates reversal of credit for inputs lying in stock or in process when a manufacturer opts for exemption based on the value or quantity of clearances. However, the Court clarified that this rule does not apply to validly taken and utilized CENVAT credit. The Supreme Court's decision in Dai Ichi Karkaria's case was pivotal, stating that there is no provision for reversing credit unless it was illegally or irregularly taken. The Court concluded that validly availed credit remains indefeasible and cannot be reversed due to subsequent exemption of the final product. 3. Entitlement to Cash Refund of CENVAT Credit: The Court addressed whether the assessee is entitled to a cash refund of CENVAT credit. The Commissioner (Appeals) had directed a refund in cash, considering the assessee could not utilize the credit due to availing exemption. The Court upheld this decision, citing that the refund in credit would be futile if the assessee is unable to use it. The Court referenced the Jharkhand High Court's decision in Commissioner of Central Excise vs. Ashok Arc, which supported cash refunds when credit utilization is not feasible. Thus, the Court affirmed the cash refund of the CENVAT credit to the assessee. Conclusion: The Court concluded that the CENVAT credit validly availed at the time of receipt of inputs for manufacturing a dutiable final product does not need to be reversed if the final product becomes exempt from duty later. The appeals were dismissed, affirming the Tribunal's decision and allowing the cash refund of the CENVAT credit to the assessee. The question of law was answered in favor of the assessee, and no costs were imposed.
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