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2011 (7) TMI 975 - AT - Central ExciseReversal of cenvat credit - when the appellants themselves have informed the department that after 31/12/2004 they have ceased their character of manufacturer and in that case they have retained the inputs on which they have availed CENVAT credit and an activity of softening was undertaken by them and cleared on payment of duty on input plus value addition. In such a situation, whether the appellant are required to reverse the CENVAT credit availed by them or not? Held that - the appellant have taken inadmissible credit, therefore, they were issued show-cause notices to reverse the same. From the facts of this case it is very much clear that the appellant have taken inadmissible credit but they have paid the same at the time of clearance with value addition. In that scenario, as held by the Hon ble apex court in the case of Narmada Chematur Pharmaceuticals Ltd. (2004 (12) TMI 93 - SUPREME COURT OF INDIA) where the assessee has wrongly availed modvat credit and was liable to reverse such amount and it was stated that the duty paid and modvat credit availed were identical and therefore consequences of payment of excise duty after availing the credit was revenue neutral. - payment of duty on value addition on the inputs received by the appellant amounts to reversal of the CENVAT credit as demanded by the department in the show-cause notices. - however penalty of ₹ 10,000/- imposed.
Issues Involved:
1. Wrong availment of CENVAT credit. 2. Eligibility to avail CENVAT credit post cessation of manufacturing activity. 3. Requirement to reverse CENVAT credit. 4. Penalty for contravention of CENVAT Credit Rules. Issue-wise Detailed Analysis: 1. Wrong availment of CENVAT credit: The appellant, engaged in manufacturing excisable goods, availed CENVAT credit on inputs and capital goods. Upon scrutiny, it was found that they continued to receive inputs and avail CENVAT credit even after ceasing manufacturing activities from 31/12/2004. The appellant only performed a softening process on hot rolled steel, which did not qualify as 'manufacture' under Section 2(f) of the Central Excise Act, 1944. Consequently, they were not entitled to avail CENVAT credit on these inputs. 2. Eligibility to avail CENVAT credit post cessation of manufacturing activity: The appellants argued that although the activity undertaken did not amount to manufacture, they cleared goods on payment of duty, which should be treated as a reversal of CENVAT credit. They cited Rule 16 of the Central Excise Rules, 2000, which allows for CENVAT credit on goods brought into the factory for re-making or re-conditioning. They contended that the duty paid on the impugned goods after value addition should be treated as a reversal of the credit availed. 3. Requirement to reverse CENVAT credit: The department argued that since the appellant ceased manufacturing activities, they were not entitled to take CENVAT credit on the impugned goods and were required to reverse the inadmissible credit. The Tribunal agreed, stating that the appellant had taken inadmissible credit but had paid the same at the time of clearance with value addition. Citing the case of Narmada Chematur Pharmaceuticals Ltd., the Tribunal held that the payment of duty on value addition amounted to a reversal of the CENVAT credit as demanded by the department. 4. Penalty for contravention of CENVAT Credit Rules: The Tribunal noted that the appellant had contravened the provisions of law by availing inadmissible credit. Consequently, the appellant was liable to be penalized under Rule 15(1) of the CENVAT Credit Rules, 2004. A penalty of Rs. 10,000 was imposed on the appellant for this contravention. Conclusion: The Tribunal concluded that the appellant was not entitled to avail CENVAT credit post cessation of manufacturing activities and was required to reverse the inadmissible credit. However, the payment of duty on value addition was treated as a reversal of the credit. A penalty of Rs. 10,000 was imposed for contravening the provisions of the CENVAT Credit Rules, 2004.
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