2014 (2) TMI 11 - AT - Central Excise

Denial of exemption claim - whether appellant is entitled to exemption under Notification No. 30/2009-CE when credit taken with respect to inputs utilised is reversed later - Held that - separate accounts or segregated the inputs utilised for manufacture of dutiable goods and duty free goods, as should have been done. The contention of the Department that in this situation, the assessee is not entitled to reverse the entries and get the benefit of the tax exemption is a question which merits serious consideration. There is no doubt that the assessee should have maintained separate accounts for duty free goods and the goods on which duty has to be paid. credit account under MODVAT rules may be maintained chapter wise, MODVAT credit is not available if the final products are exempt or are chargeable to nil rate of duty. However, where a manufacturer produces along with dutiable final products, final products which would be exempt from duty by a notification (e.g. an end use notification) and in respect of which it is not reasonably possible to segregate the inputs, the manufacturer may be allowed to take credit of duty paid on all inputs used in the manufacture of the final products, provided that credit of duty paid on the inputs used in such exempted products is debited in the credit account before the removal of such exempted final products. This circular deals with a case where the manufacturer produces dutiable final products and also final products which are exempt from duty and it is not reasonably possible to segregate inputs utilised in manufacture of the dutiable final products from the final products which are exempt from duty. In such a case, the manufacturer may take credit of duty paid on all the inputs used in the manufacture of final products on which duty will have to be paid. This can be done only if the credit of duty paid on the inputs used in the exempted products is debited in the credit account before the removal of the exempted final products - Decided against Revenue.

Summary

Issues:
- Whether the appellant is entitled to exemption under Notification No. 30/2009-CE when credit taken with respect to inputs utilized is reversed later.

Analysis:
The appeals were filed by the Revenue against orders under which proceedings against the Respondent were dropped. The main issue was whether the Respondent, engaged in fabric processing, was entitled to exemption under Notification No. 30/2004-CE while reversing cenvat credit taken on inputs used in the manufacture of exempted goods. The Revenue argued that the exemption should be construed strictly, citing judgments emphasizing that any ambiguity should benefit the Revenue. On the other hand, the Respondent relied on case laws to support their position.

The Tribunal examined the case records and referred to the judgment in Chandrapur Magnet Wires (P) Limited vs. Collector of Central Excise, Nagpur. The Tribunal highlighted that the manufacturer may take credit of duty paid on all inputs used in the manufacture of final products on which duty will have to be paid, even if it is not possible to segregate inputs for dutiable and exempted goods. The Tribunal also cited judgments from Allahabad High Court and CESTAT decisions to establish that exemption under such notifications is admissible when cenvat credit is reversed after the removal of exempted goods. The purpose of not taking cenvat credit is to prevent double benefits of duty exemption and cenvat credit.

Based on the settled principles of law and the observations made, the Tribunal rejected the appeals filed by the Revenue, upholding the entitlement of the Respondent to exemption under Notification No. 30/2004-CE.