2011 (8) TMI 710 - AT - Central Excise

Cenvat Credit - Appellant manufacturing frooti - Held That - Cenvat credit taken on inputs validly and legally when the final product is liable to duty but subsequently became exempt credit cannot be denied. (Tafe Limited vs CCE (2006 -TMI - 1143 - CESTAT BANGALORE) also affirmed by Karnatka High Court).

Summary

Issues:
- Duty demand under Rule 57AD of the Central Excise Rules, 1944 for contravention of provisions.
- Utilization of Cenvat credit on inputs for manufacturing an exempted final product.

Analysis:
1. Duty Demand under Rule 57AD:
The appellants appealed against the duty demand imposed for allegedly contravening Rule 57AD of the Central Excise Rules, 1944. The dispute arose from the appellants taking Cenvat credit on inputs used for manufacturing the product 'frooti', which later became exempt from central excise duty. The department contended that the appellants were not entitled to use the credited inputs for manufacturing the exempted product, leading to the issuance of a show-cause notice and subsequent confirmation of duty demand, interest, and penalty. The appellants challenged this decision before the Tribunal.

2. Utilization of Cenvat Credit on Inputs:
The crux of the issue revolved around whether the credited inputs could be utilized in the manufacturing of an exempted final product. The appellants relied on precedents, including the Tafe Limited case, where it was held that the reversal of Cenvat credit is not required when a final product transitions from dutiable to exempt. This position was further supported by decisions from the Karnataka High Court and the Larger Bench of the Tribunal. On the contrary, the respondent argued that the inputs used in manufacturing a product initially chargeable to duty but later exempted could lead to a valid demand for unutilized inputs, citing the Albert David Ltd. case.

3. Judicial Pronouncements and Decision:
After considering arguments from both sides and examining relevant precedents, the Tribunal concluded that the Cenvat credit taken on inputs legally and validly for a dutiable final product, which later became exempt, cannot be denied. The Tribunal referred to decisions from various High Courts affirming this position, thereby setting aside the impugned order and allowing the appeal with consequential relief. The Tribunal emphasized being bound by the judicial pronouncements of the Hon'ble High Courts in reaching its decision.

In summary, the judgment addressed the duty demand under Rule 57AD and the utilization of Cenvat credit on inputs for manufacturing an exempted final product. The Tribunal's decision aligned with precedents and High Court rulings, emphasizing the validity of utilizing credited inputs for products transitioning from dutiable to exempt status.