2008 (4) TMI 145 - AT - Central Excise

Credit cannot be disallowed without issue of show cause notice and there is no time limit for taking credit on capital goods finding of commissioner that in view of voluntary reversal, there was no need to issue SCN, is not acceptable - proper procedure for the department to follow was to issue show cause notice and after considering the reply of the appellant pass a speaking order - matter remanded for deciding the availability of credit on merits

Summary

Issues:
1. Admissibility of Cenvat credit on capital goods.
2. Requirement of show cause notice before reversal of credit.
3. Legal implications of voluntary reversal of credit.
4. Applicability of case law and circulars in determining credit eligibility.
5. Proper procedure for the department in cases of credit reversal.

Analysis:
1. The appellants availed capital goods credit in 2000 but faced issues with defacement of documents for certain items like chains and boiler tubes. The Range Superintendent refused credit for these items under Chapter 73, leading to a voluntary reversal of Rs. 51,28,744 on 30th Sept. 2000. Despite legal advice suggesting recrediting was permissible, the Superintendent later informed that credit could not be retaken after 2 years.

2. The appellants contended that a show cause notice should have been issued before requiring credit reversal. The Commissioner (Appeals) upheld the reversal as voluntary, stating no notice was necessary. However, the appellants argued that legal precedents and circulars support the need for a show cause notice before disallowing credit, citing relevant Tribunal decisions and circulars.

3. The Tribunal found that the Commissioner's view on voluntary reversal not requiring a show cause notice was flawed. It emphasized the importance of natural justice principles, stating that the department should issue a show cause notice, consider the appellant's response, and then pass a speaking order. The case law cited by the appellants supported the requirement of a show cause notice before reversing credit.

4. The Tribunal highlighted that the eligibility of capital goods credit should be determined based on law and without delay in initial credit availing. It emphasized the need for proper procedure, including issuing a show cause notice and ensuring the principles of natural justice are followed. The matter was remanded for the appropriate adjudicating authority to decide credit availability based on merits.

In conclusion, the judgment addressed the issues of Cenvat credit admissibility, the necessity of a show cause notice before credit reversal, legal implications of voluntary reversal, the relevance of case law and circulars, and the proper procedural steps for the department to follow in such cases.