2008 (5) TMI 245 - AT - Central Excise

Final product becoming exempt - At that time, there was no balance in the RG 23A Part II account - held that, in case goods became exempted, no demand can be made in respect of credit availed and utilised during the period when final product is dutiable and credit in respect of AED (T&TA) cannot be utilised for payment of basic excise duty

Summary

Issues:
1. Utilization of credit in respect of Additional Excise Duty (Textile and Textile Articles) Act for payment of basic excise duty.
2. Liability of manufacturer to reverse credit on basic excise duty in case of exemption of final product from duty payment.
3. Sustainability of demand raised by lower authorities.

Analysis:
1. The appellant, engaged in manufacturing grey fabrics under the CENVAT credit scheme, faced a demand due to wrongly utilizing credit in respect of Additional Excise Duty (AED) for paying basic excise duty. The issue revolved around whether such utilization was permissible, leading to the demand being confirmed by the adjudicating authority and the Commissioner (Appeals).

2. The appellant contended that even if the final product was exempt from duty payment, they were only required to reverse the credit on basic excise duty lying in their accounts, not the already utilized credit. They cited legal precedents to support their argument, including a Tribunal decision and High Court judgments. The Revenue's stance was that the demand was rightfully made based on the incorrect payment of basic excise duty from the AED credit account.

3. The Tribunal noted that the law prohibits the use of AED credit for paying basic excise duty, as established in previous cases. In this instance, the appellant had availed credit for inputs used in manufacturing, and when the final product became duty-exempt, they paid basic excise duty from the AED account, which was impermissible. The Tribunal referred to precedents emphasizing that no demand can be raised for credit availed and utilized during a period when the final product was dutiable. High Court judgments further supported the appellant's position regarding the entitlement and utilization of credit against future duty liability.

4. The High Court's decision in a similar case reinforced the appellant's argument, stating that the credit of duty paid on inputs need not be reversed if correctly availed and utilized when the final products were chargeable to excise duty. The Court emphasized that the relationship between inputs and final products need not be one-to-one, and the appellant was not required to reverse the CENVAT credit. The judgment was based on the correct application of legal principles, leading to the dismissal of the appeal by the Revenue.

5. Consequently, the Tribunal found the High Court's decision applicable to the present case, setting aside the impugned order and allowing the appeal in favor of the appellant. The judgment highlighted the importance of correctly availing and utilizing credits in compliance with legal provisions, ultimately leading to the resolution of the issues raised in the case.