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2014 (12) TMI 905 - HC - Central ExciseReversal of cenvat credit after finished goods become exempted goods - Demand of CENVAT Credit on inputs lying in stock and inputs contained in finished goods lying in stock - Tribunal followed decision of Albert David Ltd. v. CCE 2002 (11) TMI 144 - CEGAT, COURT NO. III, NEW DELHI - Held that - Assuming for the moment that the credit is available, it can be used for payment of duty on any other excisable articles and not exempted goods. In such view of the matter, we are not agreeable with the view taken by the Allahabad High Court that it will amount to unjust enrichment. We also notice that the decision in Super Cassettes Industries Ltd case, referred 1997 (1) TMI 98 - HIGH COURT OF JUDICATURE AT ALLAHABAD , which has been relied upon by the Division Bench in Brook Bond Lipton India Ltd. Case, referred 2011 (8) TMI 593 - Allahabad High Court , did not find favour with the Supreme Court in Dai Ichi Karkaria Ltd. Case, referred 1999 (8) TMI 920 - SUPREME COURT OF INDIA . In such view of the matter, it has to be held that the view taken by the Allahabad High Court has not been accepted by the Supreme Court. - Tribunal in Ashok Iron and Steel Fabricators case, referred 2002 (1) TMI 91 - CEGAT, NEW DELHI as well as the decision of the Bangalore Bench of the Tribunal in the assessee s own case have emphasised over and over again on para (17) of the decision of in Dai Ichi Karkaria Ltd. Case, referred 1999 (8) TMI 920 - SUPREME COURT OF INDIA , which has very clearly set out the position as to how the credit taken on inputs should be utilized. Once it is held that no co-relation between the raw material and the final product is required, the appellant s plea stands answered. If credit can be taken against excise duty on a final product manufactured on the very day, it makes it abundantly clear that there need not be co-relation between the input and the goods cleared and as a result, validly taken credit need not be reversed. The Central Excise Rules would come into play in the following manner, that is to say, on the date when the final goods become exempt from payment of duty, for the inputs received on and after the said date, no credit can be taken. This would be the correct method of understanding of the position of law. The introduction of Rule 11(3) of the Cenvat Credit Rules, 2004, by notification No.10/2007-CE (NT), dated 1.3.2007 and the Tax Research Unit Circular in D.O.F.No.334/1/2007-TRU, dated 28.2.2007 clarifying that it will come into effect immediately, makes it clear that the position of law as it stood decided in the assessee s own case by the Karnakata High Court, the appeal against which was dismissed by the Supreme Court, is the correct position. The Tribunal in this case erred in distinguishing the decision of the Bangalore Bench Tribunal placing reliance on Albert David Ltd. case, referred supra. In any event, Ashok Iron and Steel Fabricators case, referred 2002 (1) TMI 91 - CEGAT, NEW DELHI , is a Larger Bench decision and the same has been upheld by the Supreme Court and that would be binding on the Tribunal, rather than the Two-Member Bench decision in Albert David Ltd. Case, referred 2002 (11) TMI 144 - CEGAT, COURT NO. III, NEW DELHI . - Decided in favour of assesse.
Issues Involved:
1. Reversal of Cenvat credit on inputs lying in stock or contained in finished tractors as on the date of exemption. 2. Validity of availing Cenvat credit when the final product becomes exempt from duty. 3. Applicability of the decision in the case of Albert David Ltd. v. CCE vis-`a-vis the Supreme Court decision in Dai-Ichi Karkaria. 4. Applicability of the Larger Bench decision in the case of CCE, Rajkot v. Ashok Iron and Steel Fabricators. 5. Conflict with the Supreme Court ruling in UOI v. Paras Laminates (P) Ltd. regarding the decision in the appellant's own case. Detailed Analysis: 1. Reversal of Cenvat credit on inputs lying in stock or contained in finished tractors as on the date of exemption: The appellant, a manufacturer of agricultural tractors, had taken credit on duties paid on inputs under Rule 3 of the Cenvat Credit Rules. The final product, tractors, was exempted from excise duty from 9.7.2004. The Commissioner of Central Excise issued a show cause notice demanding reversal of the Cenvat credit taken on inputs/components lying in stock as on 9.7.2004 and on inputs/components contained in the closing stock of finished tractors lying in stock as on 9.7.2004. The Tribunal upheld the Commissioner's order, relying on the decision in Albert David Ltd. v. CCE, which held that credit taken on inputs lying in stock on the date the final products became exempt from duty was recoverable. 2. Validity of availing Cenvat credit when the final product becomes exempt from duty: The appellant argued that the Cenvat credit was validly taken when there was no exemption from excise duty on tractors and thus, it need not be reversed. They relied on the Supreme Court decision in Dai Ichi Karkaria Ltd. and the Larger Bench decision in Ashok Iron and Steel Fabricators, which stated that once input credit is legally taken and utilized on the dutiable final product, it need not be reversed even if the final product becomes exempt subsequently. 3. Applicability of the decision in the case of Albert David Ltd. v. CCE vis-`a-vis the Supreme Court decision in Dai-Ichi Karkaria: The Tribunal in the present case relied on Albert David Ltd. v. CCE, which was affirmed by the Supreme Court, to hold that credit taken on inputs lying in stock on the date the final products became exempt from duty was recoverable. However, the appellant argued that the decision in Dai Ichi Karkaria Ltd., which held that credit validly taken need not be reversed unless taken illegally or irregularly, should prevail. 4. Applicability of the Larger Bench decision in the case of CCE, Rajkot v. Ashok Iron and Steel Fabricators: The Tribunal acknowledged that the Larger Bench decision in Ashok Iron and Steel Fabricators was in favor of the appellant and upheld by the Supreme Court. However, it chose to rely on Albert David Ltd. v. CCE, citing the Supreme Court's affirmation of that decision. The High Court noted that the Larger Bench decision should be binding, emphasizing that validly taken credit need not be reversed. 5. Conflict with the Supreme Court ruling in UOI v. Paras Laminates (P) Ltd. regarding the decision in the appellant's own case: The appellant pointed out that in their own case, the Bangalore Tribunal had ruled in their favor, which was upheld by the Karnataka High Court and the Supreme Court dismissed the department's special leave petition. The High Court held that this decision would be binding in the present case, thus supporting the appellant's position that validly taken credit need not be reversed. Conclusion: The High Court allowed the appeal, holding that the decision in the appellant's own case by the Karnataka High Court, upheld by the Supreme Court, was binding. It emphasized that credit validly taken need not be reversed even if the final product becomes exempt subsequently. The Tribunal erred in relying on Albert David Ltd. v. CCE and should have followed the Larger Bench decision in Ashok Iron and Steel Fabricators. The substantial questions of law were answered in favor of the appellant, and the appeal was allowed with no costs.
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