2011 (9) TMI 686 - AT - Central Excise

Reversal of cenvat credit - Notification No. 144/89-C.E., dated 19-5-1989 - Rule 57A of the Central Excise Rules, 1944 - Once the credit has been validly taken and utilized, the question of its recovery does not arise when at a later point in time the goods became exempted - what is relevant is at the time of taking credit and utilization of the credit, whether the assessee was entitled for the same. Once the assessee is entitled, then the question of reversal of the same at a subsequent point of time does not arise at all - Decided in favor of the assessee

Summary

Issues:
- Appeal against order-in-appeal No. YDB/84/II/2009 passed by the Commissioner of Central Excise (Appeals), Mumbai.
- Validity of availing duty exemption under Notification No. 144/89-C.E., dated 19-5-1989 and Cenvat credit of duty paid on excisable goods used as inputs.
- Imposition of penalties under Rule 173Q of the Central Excise Rules, 1944.
- Interpretation of Rule 57C of the Central Excise Rules, 1944 regarding the manufacturer's ability to take credit of duty paid on inputs when the final product is exempt from duty.

Analysis:

1. The appellant, a manufacturer of electrical switches, was issued a show-cause notice for availing duty exemption under Notification No. 144/89 and taking Cenvat credit of duty paid on inputs. The Assistant Commissioner confirmed the demand and imposed a penalty, which was upheld by the Commissioner (Appeals), leading to the appeal before the Tribunal.

2. The appellant argued that once Cenvat credit was validly taken and utilized before availing exemption, recovery of the credit upon later exemption is not permissible, citing judgments from the Apex Court and various High Courts supporting this position.

3. The Department contended that as per Rule 57C, when a product is exempt from duty, no credit of duty paid on inputs can be taken. They relied on a Supreme Court case and a Tribunal order to support their argument that Modvat credit on inputs used in exempt final products must be reversed.

4. The Tribunal analyzed the legal principles established in previous judgments, emphasizing that if credit was rightfully taken and utilized when the goods were dutiable, it cannot be recovered upon subsequent exemption. The Tribunal distinguished the present case from the Supreme Court case relied upon by the Department, highlighting the crucial difference in facts and circumstances.

5. Ultimately, the Tribunal ruled in favor of the appellant, setting aside the previous orders and allowing the appeal. However, any unutilized duty credit at the time of the final product's exemption was deemed to lapse. This decision was based on the principle that credit rightfully taken and utilized before exemption cannot be reversed later, except for any remaining unutilized credit.

6. The judgment was pronounced on 22-9-2011, providing a clear interpretation of the law regarding the reversal of Cenvat credit in cases of subsequent duty exemptions, ensuring fairness and adherence to legal principles.