2015 (4) TMI 697 - SC - Central Excise

Denial of CENVAT Credit - SSI Exemption - delayed reversal of cenvat credit - in respect of inputs lying in stock or used in any finished excisable goods lying in stock on the date when option to avail exemption of duty was exercised - appellant had not debited the balance, when it had started availing the exemption from payment of duty but had done subsequently i.e. 03.10.2000 - Held that - Commissioner took the view that merely because the earlier credit of ₹ 86 ,222 /- was debited on 03.10.2000 would not deny the benefit of the exemption Notification to the appellant which was otherwise available. - After discussing Rule 57 AG (2) and interpreting the same, the Commissioner took the view that the said Rule would not come as a handicap in the way of the appellant in claiming the benefit of the said Notification inasmuch as it nowhere provides that the MODVAT credit balance which was there with the appellant had to be debited before exercising the option to avail the exemption under the Notification. - interpretation given by the Commissioner on the facts of the present case is completely valid and correct. Contrary view which is taken by the CESTAT is unsustainable. - Decided in favour of assessee.

Summary

Issues:
- Appeal against order of Customs, Excise and Service Tax Appellate Tribunal (CESTAT) dated 10.08.2004
- Validity of availing exemption under Notification 8/2000
- Debiting MODVAT credit post-availing exemption
- Interpretation of Rule 57 AG (2) of the Central Excise Rules, 1944

Analysis:
The appellant, engaged in manufacturing paints and bituminous mixtures, availed MODVAT credit on inputs during the financial year 1999-2000. Following total duty exemption from 01.04.2000 under Notification 8/2000, the appellant debited a credit of &8377; 86,222/- in the Profit and Loss Account on 03.10.2000, after having a nil closing balance in RG-23A Part II as of 31.03.2000. A subsequent show-cause notice sought recovery of &8377; 14,28,370 under Section 11A of the Central Excise Act, alleging failure to debit the credit balance at the start of the exemption period. The appellant contended that conditions of Notification 8/2000 were met, and the delayed debit did not affect exemption eligibility.

The Commissioner, after considering the conditions of Notification 8/2000, ruled in favor of the appellant, emphasizing that the failure to debit the credit balance immediately did not negate the exemption benefit. The Commissioner's interpretation of Rule 57 AG (2) clarified that debiting was required only if a balance existed, and the absence of such balance did not warrant denial of the exemption. The Commissioner's decision was deemed valid, overturning the CESTAT's contrary ruling. Consequently, the Supreme Court allowed the appeal, setting aside the CESTAT's judgment.

In conclusion, the judgment addressed the appellant's entitlement to exemption under Notification 8/2000 despite delayed debiting of MODVAT credit, emphasizing compliance with notification conditions. The interpretation of Rule 57 AG (2) established that debiting was contingent on existing credit balances, and the absence of such balances did not invalidate the exemption claim. The Commissioner's decision was upheld as legally sound, leading to the Supreme Court's reversal of the CESTAT's judgment in favor of the appellant.