2011 (9) TMI 227 - AT - Central Excise

Reversal of cenvat credit during litigation - taking re-credit of such duty after appeal decided in favor of assessee - Revenue contended that re-credit was not on the basis of any documents mentioned in Rule 7 of Cenvat Credit Rules, 2002 - Held that the said deposits were made by the appellant after confirming demand by the order and the entries were reversed subsequently after allowing of the appeal. The provisions of Rule 7 ibid are not applicable in such cases - amount re-credited by the appellant are in fact pre-deposit made under section 35F of Central Excise Act, 1944, which requires the appellants to deposit the dues, before filing the appeal before higher appellate forum - The reasoning of the appellate authority that such amounts were deposited by the appellant against the adjudication order and not against pre-deposit order is devoid of merits and is against express provision of Section 35F ibid. If such reasoning is preferred and adopted, it would amount to defeat the very purpose of Section 35F - Hence set aside the impugned order and allow the appeal with consequential relief to the appellant

Issues:
1. Availment of cenvat credit based on order-in-appeal.
2. Disallowance of re-credit by the Commissioner (Appeals).
3. Interpretation of Rule 7 of Cenvat Credit Rules, 2002.
4. Application of Section 35F of Central Excise Act, 1944.

Issue 1: Availment of cenvat credit based on order-in-appeal
The appellants, engaged in manufacturing electron guns, faced demands confirmed by the original authority. Upon challenging these demands before the Commissioner (Appeals), the appeal was allowed, leading to the appellants re-crediting amounts in their cenvat credit account. However, a subsequent show cause notice alleged improper re-credit based on the order-in-appeal, which was not a prescribed document under Rule 7 of Cenvat Credit Rules, 2002. The original adjudicating authority and the Commissioner (Appeals) upheld this disallowance, prompting the present appeal.

Issue 2: Disallowance of re-credit by the Commissioner (Appeals)
The Commissioner (Appeals) disallowed the re-credit, emphasizing that the cenvat credit availed was not based on the prescribed documents under Rule 7. Despite the appellants' argument that the re-credit was due to the appellate authority's grant of consequential relief, the Commissioner (Appeals) found no evidence of such relief in the order-in-appeal. The absence of the term 'consequential relief' in the order-in-appeal led to the disallowance of the appeal by the Commissioner (Appeals).

Issue 3: Interpretation of Rule 7 of Cenvat Credit Rules, 2002
The re-credit availed by the appellants was not in accordance with Rule 7 of Cenvat Credit Rules, 2002, as it was a result of the original demands being set aside by the Commissioner (Appeals). The deposits made by the appellants against the demands were subsequently reversed after the appeal was allowed. The Tribunal noted that Rule 7 did not apply in such cases where re-credit was a consequence of appeal success, rather than being based on prescribed documents.

Issue 4: Application of Section 35F of Central Excise Act, 1944
The Tribunal addressed the Commissioner (Appeals)'s contention that the re-credited amounts were not pre-deposits under Section 35F of the Central Excise Act, 1944. It clarified that the appellants had indeed deposited the dues before filing the appeal, as required by law. Rejecting the Commissioner (Appeals)'s reasoning, the Tribunal emphasized that such differentiation in treatment would undermine the purpose of Section 35F, which mandates depositing dues before approaching higher appellate forums. The appeal was allowed with consequential relief, ensuring that the lower authorities do not reject it on the grounds of lacking explicit mention of consequential relief in the order.

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