2008 (9) TMI 87 - HC - Central Excise

Reversal of credit separate accounts - Not. 30/04 gives exemption when credit not availed on input - held that reversal of credit amounts to non-taking of credit on the inputs. Hence, the benefit has to be given of the notification granting exemption/rate of duty on the final products Tribunal is justified in holding that credit availed of and reversal would amount to the effect as if the same was not availed and would thus satisfy the condition of Notification No.30/2004-CE

Issues Involved:
1. Justification of Tribunal's decision regarding credit availed and reversal under Notification No.30/2004-CE.
2. Compliance with conditions prescribed under Notification No.30/2004-CE in light of Rule 3 of Cenvat Credit Rules, 2004.
3. Maintenance of separate books of accounts for availing benefits under Notifications No.29/2004-CE and No.30/2004-CE.
4. Applicability of Supreme Court's decision in Chandrapur Magnet Wires (P) Ltd. to the present case.
5. Interpretation and strict compliance of notification conditions.

Issue-wise Detailed Analysis:

1. Justification of Tribunal's Decision Regarding Credit Availed and Reversal:
The Tribunal held that the reversal of credit availed would amount to the effect as if the credit was never availed, thereby satisfying the condition of Notification No.30/2004-CE. This decision was based on the Supreme Court's ruling in Chandrapur Magnet Wires (P) Ltd., which established that the reversal of credit originally availed would nullify the credit's effect.

2. Compliance with Conditions Prescribed under Notification No.30/2004-CE:
Notification No.30/2004-CE exempts certain goods from excise duty provided no Cenvat credit is availed on inputs. The respondent argued that reversing the credit before clearance should be considered as non-availment of credit. The Tribunal supported this view, referencing the Supreme Court's decision that allowed for such an interpretation, thus fulfilling the condition of the notification.

3. Maintenance of Separate Books of Accounts:
The respondent did not maintain separate accounts for inputs used in manufacturing goods cleared under both notifications, as required. The Commissioner of Central Excise emphasized the necessity of maintaining separate accounts for inputs to comply with the notification. However, the Tribunal found that the reversal of credit negated the need for separate accounts, aligning with the Supreme Court's precedent.

4. Applicability of Supreme Court's Decision in Chandrapur Magnet Wires (P) Ltd.:
The Tribunal applied the Supreme Court's ruling in Chandrapur Magnet Wires (P) Ltd., which allowed for the reversal of credit to be treated as non-availment. The Revenue argued that this precedent was not applicable due to different facts and the specific notification in question. However, the Tribunal found the principles laid down in Chandrapur Magnet Wires (P) Ltd. relevant and applicable to the present case.

5. Interpretation and Strict Compliance of Notification Conditions:
The Revenue contended that notifications must be strictly construed, and any non-compliance with conditions should disqualify the respondent from benefits. The Tribunal, however, interpreted that the reversal of credit satisfied the notification's condition, thus allowing the respondent to avail the exemption. The Tribunal's interpretation was supported by the Supreme Court's approach in similar cases, emphasizing the practical application of rules over strict literal compliance.

Conclusion:
The Tribunal's decision was upheld, dismissing the Revenue's appeals. The Tribunal correctly applied the Supreme Court's precedent, allowing the reversal of credit to be treated as non-availment, thus satisfying the conditions of Notification No.30/2004-CE. The requirement for maintaining separate accounts was deemed unnecessary due to the reversal of credit. The High Court found no substantial question of law arising from the Tribunal's order, affirming the Tribunal's judgment.

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