2012 (9) TMI 245 - AT - Central Excise

Reversal of input credit on stock or work in progress when the appellant opts for exemption - Held that - As decided in CCE, Chandigarh vs. C.N.C. Commercial Ltd. 2007 (10) TMI 203 - HIGH COURT PUNJAB AND HARYANA the assessee-respondent had correctly availed and utilized the credit of duty paid by them on those inputs when these final products were chargeable to excise duty - As there was no one to one relationship of the inputs used and the final products manufactured and cleared from the factory the credit of duty paid on inputs cannot be confined to a particular raw-material to which the credit is related and out of which a final product is manufactured. Hence denied recovery of Cenvat credit by the mode of reversal when a Small Scale Industry opts for exemption - in favour of assessee.

Summary

Issues Involved:
Whether input credit element in stock or work in progress is reversible when opting for exemption after a specific date.

Analysis:
The appeal before the Appellate Tribunal CESTAT, New Delhi revolves around the issue of whether the input credit element lying in stock or work in progress shall be reversible when the appellant opts for exemption after 31.3.2007. The dispute arises from the fact that prior to the mentioned date, the appellant was discharging duty liability. However, after 31.3.2007, the closing stock of finished goods and work in progress were cleared without payment of duty as the appellant chose exemption from that date onwards. The Revenue contended that since Cenvat credit had been allowed on the input used in manufacturing the finished goods and work in progress, the part of such input remaining in stock on 31.3.2007 should be recovered due to the output being exempted.

The claim of Cenvat credit is based on the "no one to one relation rule," indicating the challenge in dissecting the input content from the output after processing. Additionally, the notification specifies that opting for exemption extinguishes the right to avail any unutilized Cenvat credit on record. This issue has been a subject of controversy before the Hon'ble High Court of Punjab & Haryana in previous cases such as CCE, Chandigarh vs. C.N.C. Commercial Ltd. and CCE, Chandigarh vs. Tyre Tops. The High Court has previously ruled against the recovery of Cenvat credit through reversal when a Small Scale Industry opts for exemption.

In light of the precedents and the arguments presented, the appeal has been allowed by the Appellate Tribunal CESTAT, New Delhi, indicating a favorable decision for the appellant regarding the reversible nature of input credit elements in stock or work in progress when opting for exemption post the specified date.