2012 (4) TMI 529 - AT - Central Excise

CENVAT Credit - Re conditioning of machines - Nexus with manufacturing activity - Held that - appellant has cleared the re-conditioned machines on payment of duty and their rebate claim was also rejected. Such payment of duty in excess of the credit availed tantamounts to reversal of credit and there is no need to once again reverse the Cenvat credit taken. In a similar situation, the Hon ble Apex Court in the case of CCE, Vadodara v. Narmada Chemattur Pharmaceuticals Ltd. 2004 (12) TMI 93 - SUPREME COURT OF INDIA held that when Cenvat credit wrongly availed is exactly equivalent to the amount of duty paid, the consequence is revenue neutral and hence the demand for such wrong availment of credit is not sustainable in law. The ratio of this judgment squarely applies to the facts of the present case. So is the judgment of this Tribunal in the case of Vickers Systems International (2007 (12) TMI 140 - CESTAT, MUMBAI). Respectfully following these decisions - Decided in favour of assessee.

Summary

Issues:
- Appeal against Order-in-appeal No. PIII/VM/241, dated 20-11-2009 passed by the Commissioner of Central Excise (Appeals), Pune-III.
- Availing Cenvat credit on imported second-hand setting machines.
- Rejection of rebate claim and demand for recovery of inadmissible Cenvat credit.
- Adjudication of the notice issued to the appellant.
- Appeal against the adjudicated order.
- Interpretation of duty payment on re-conditioned machines for export.
- Applicability of previous judgments on similar cases.

Analysis:

The appellant, a manufacturer of card clothing machines, imported 13 second-hand setting machines from the U.K. and availed Cenvat credit of Rs. 7,15,755. Out of these, 8 machines were used in their factory, while 5 were reconditioned and exported to China after paying excise duty. The department rejected the rebate claim and issued a notice proposing to recover Rs. 2,71,094 of inadmissible Cenvat credit on the 5 exported machines. The appellant was compelled to reverse the credit along with interest and faced a penalty. The appeal was made against this order, which was rejected by the lower appellate authority, leading to the current appeal.

The appellant argued that the duty paid on the reconditioned machines for export should be considered as a reversal of credit, as the duty amount exceeded the Cenvat credit availed. Citing the judgment in the case of Vickers Systems International, the appellant contended that such duty payment should suffice as credit reversal. The Revenue, represented by the ld. AR, supported the decisions of the lower authorities.

Upon careful consideration, the tribunal noted that the appellant cleared the reconditioned machines by paying duty, and their rebate claim was turned down. The tribunal agreed with the appellant's argument that the duty payment exceeding the credit availed should be treated as credit reversal. Referring to the Supreme Court's decision in CCE, Vadodara v. Narmada Chemattur Pharmaceuticals Ltd., the tribunal emphasized that when wrongly availed Cenvat credit equals the duty paid, the situation is revenue neutral, rendering the demand for credit reversal unsustainable. The tribunal also highlighted the relevance of the judgment in the Vickers Systems International case. Consequently, the tribunal allowed the appeal, setting aside the impugned order and providing any necessary consequential relief.

This judgment clarifies the treatment of duty payment on reconditioned machines for export and emphasizes the principle of revenue neutrality when the duty paid matches the wrongly availed credit. It underscores the importance of previous legal precedents in determining the sustainability of demands for credit reversal, providing guidance for similar cases in the future.