2012 (7) TMI 746 - AT - Central Excise

Demand of duty Export of goods manufactured - Cenvat credit goods unconditionally exempted from payment of excise duty w.e.f 01/03/2007 vide notification No.6/2006-CE Held that - Assessee, manufacturing goods chargeable to nil duty, is eligible to avail Cenvat Credit paid on the inputs under the exception clause Rules 6 (1), as contained in Rule 6 (5) of the Cenvat Credit Rules, 2002 and Rule 6 (6) of Cenvat Credit Rules, 2004, used in the manufacture of such goods if the goods are exported - demand of the department towards Cenvat Credit on the inputs used in the manufacture of export goods is not sustainable in law - assessee entitled for the credit. Reversal of credit - inputs cleared as such by the appellant both in respect of inputs lying in stock as on 01/03/2007 and also in respect of inputs received after 01/03/2007 - assessee s contention is that they have cleared the same on reversal of credit to their sister unit, which is a 100% EOU and the 100% EOU has taken the credit Held that - Whether this amount includes the reversal of credit taken on inputs lying in stock as on 01/03/2007 or received after 01/03/2007 requires corroboration through documentary evidences. Therefore, the appellant has to lead evidence in respect of the supplies of inputs as such to 100% EOU, duty involved thereon and the reversal of credit made in the RG-23 register, so that their claim of reversal of credit is substantiated - matter remanded to adjudicating authority for reconsideration

Issues Involved:
1. Applicability of Rule 11 (3) of the Cenvat Credit Rules, 2004.
2. Reversal of Cenvat credit on inputs lying in stock and inputs contained in finished goods as on the date when the final product became exempt.
3. Export of exempted final products under bond and its impact on Cenvat credit.
4. Transfer of inputs to a 100% Export Oriented Unit (EOU) and its implications on Cenvat credit.
5. Invocation of the extended period of limitation.
6. Imposition of penalty under Section 11AC of the Central Excise Act, 1944.

Issue-wise Detailed Analysis:

1. Applicability of Rule 11 (3) of the Cenvat Credit Rules, 2004:
The appellant argued that Rule 11 (3) does not apply when exempted final products are exported under bond. They contended that Rule 11 (3) applies only to the balance amount remaining in the Cenvat credit account after reversing inputs lying in stock or contained in finished goods when the final product becomes exempt. The Tribunal found merit in this argument, noting that Rule 6 (6) (v) of the Cenvat Credit Rules allows credit for inputs used in the manufacture of final products cleared for export under bond.

2. Reversal of Cenvat Credit on Inputs Lying in Stock and Inputs Contained in Finished Goods:
The appellant claimed they had exported the entire stock of finished Optical Disc Drives (ODD) lying in stock as of 01/03/2007 and utilized the same stock of inputs for manufacturing ODDs, which were then exported. They further argued that they had reversed the credit amount pertaining to inputs lying in stock and used in exported final products. The Tribunal directed the appellant to provide evidence supporting their claim that inputs were used in the manufacture of export products and that credit was reversed as required.

3. Export of Exempted Final Products under Bond:
The Tribunal referred to the judgments of the Bombay High Court in Repro India Ltd. and the Himachal Pradesh High Court in CCE Vs. Drish Shoes Ltd., which held that Cenvat credit is allowable on inputs used in the manufacture of exempted goods exported under bond. The Tribunal concluded that the demand for Cenvat credit on inputs used in the manufacture of export goods is not sustainable in law, provided the appellant submits satisfactory evidence of such usage.

4. Transfer of Inputs to a 100% Export Oriented Unit (EOU):
The appellant argued that they had transferred inputs to their sister unit, a 100% EOU, on reversal of credit, and the EOU had availed the credit. The Tribunal noted that the appellant must provide documentary evidence, such as debit entries in the Cenvat Credit register, to substantiate their claim of credit reversal. The Tribunal found that the evidence provided, such as ER-1 returns, was insufficient and directed the appellant to submit further evidence.

5. Invocation of the Extended Period of Limitation:
The appellant contended that all material facts were within the knowledge of the department, and therefore, the extended period of limitation should not be invoked. The Tribunal did not specifically address this issue in detail but implied that the matter required reconsideration by the adjudicating authority.

6. Imposition of Penalty under Section 11AC:
The appellant argued that no penalty should be imposed as the issue involved the interpretation of legal provisions. The Tribunal did not explicitly address the penalty issue but remanded the matter for reconsideration by the adjudicating authority, implying that the penalty aspect would also be reviewed.

Conclusion:
The Tribunal remanded the matter to the adjudicating authority for reconsideration in light of the judicial pronouncements and directed the appellant to provide evidence supporting their claims. The appeal was allowed by way of remand, and the stay application was disposed of on these terms. The adjudicating authority was instructed to give the appellant a reasonable opportunity to present their defense.

← Previous Next →