2008 (4) TMI 281 - HC - Central Excise

SSI exemption denied credit taken on inputs used in exempted final goods - whether petitioner is entitled to avail the Modvat Credit with respect to inputs used for manufacture of products on which no excise duty is leviable - since admittedly the appellant had not reversed the credit before removal of the exempted final products authorities below deciding the issue in favour of revenue is correct - reference application is therefore dismissed no question of law arise

Summary

Issues:
1. Whether the substantive benefit of exemption can be denied for procedural irregularities?

Analysis:
The petitioner, a manufacturer of aerated water, produced two brands: Campa and Mr. Dik Soda. While Campa was excisable, Mr. Dik was exempt from excise duty. The controversy arose when the petitioner sought to avail Modvat Credit on common inputs used for both products, but the department refused, citing lack of provision for reversal. The Assistant Collector held that full exemption for Dik brand aerated water was not admissible under Notification 1/93. The issue was not about the liability of Dik brand to excise duty, but whether Modvat Credit could be availed for non-dutiable products.

The petitioner's appeals were dismissed, and reliance was placed on the Supreme Court judgment in Chandrapur Magnet Wires (P) Ltd. v. Collector of C. Excise, Nagpur. The Tribunal found the Chandrapur case inapplicable as the credit reversal was done after product clearance, unlike in Chandrapur where it was reversed before clearance. The court examined the notification and Supreme Court judgment, emphasizing the need to reverse credit before removal of exempted final products. The court rejected the petitioner's argument of consistent monthly return submissions as evidence of credit reversal before removal, as all authorities confirmed reversal post-removal.

The court concluded that since the appellant did not reverse credit before removal of exempted products, there was no error in the lower authorities' decisions. The reference application was dismissed, affirming denial of substantive benefit due to procedural irregularities.

This detailed analysis highlights the key legal arguments, application of precedent, interpretation of relevant provisions, and the court's reasoning leading to the final decision.