2016 (9) TMI 1095 - AT - Central Excise

Cenvat Credit - impact of subsequent decision of apex court - Rule 14 of Cenvat Credit Rules 2004 read with proviso to Sub-section (1) of Section 11A of Central Excise Act 1944 - procurement of plastic laminated packing pouches as their inputs for packing their finished goods - Hon ble Supreme Court ordered that plastic laminated packing pouches should not be used for packing of Chewing Tobacco on 11th May 2011 and cenvat credit availed was for the period from March 2009 to March 2011 - Held that - it is found that the date on which Cenvat credit was taken by the appellant the inputs on which the Cenvat credit was taken were regularly in use for packing the finished product and therefore the Cenvat credit availed was eligible. I also find that Cenvat credit which is validly taken needs to be reversed only when the inputs are cleared as such. I further note that Rule 14 of Cenvat Credit Rules 2004 provided for recovery of irregularly availed Cenvat credit and it is beyond the scope of said Rule 14 of Cenvat Credit Rules to recover the Cenvat credit which was validly taken. I therefore hold that the Show Cause Notice is misconceived and therefore I set aside the Show Cause Notice Order-in-Original and Order-in-Appeal. - Decided in favour of appellant

Summary

Issues:
- Validity of Cenvat credit availed on plastic laminated packing pouches before a Supreme Court order banning their use for packing Chewing Tobacco
- Recovery of Cenvat credit under Rule 14 of Cenvat Credit Rules, 2004
- Imposition of interest and penalty under Central Excise Act, 1944

Issue 1: Validity of Cenvat credit availed on plastic laminated packing pouches before a Supreme Court order

The appellant, engaged in manufacturing Chewing Tobacco, availed Cenvat credit on plastic laminated packing pouches used for packing their finished goods. Subsequently, a Supreme Court order banned the use of these pouches for packing Chewing Tobacco. The Revenue issued a Show Cause Notice demanding recovery of the Cenvat credit availed. The appellant argued that at the time of availing the credit, there was no final order from the Supreme Court regarding the use of these pouches. The Original Authority confirmed the demand, stating that the credit availed became ineligible post the Supreme Court order. The Commissioner (Appeals) set aside the penalty imposed under Section 11A of Central Excise Act, 1944. The Tribunal, considering the validly taken credit and the continuous use of inputs, held that the credit need not be reversed unless the inputs are cleared as such. The Tribunal found the Show Cause Notice misconceived and set it aside, allowing the appeal.

Issue 2: Recovery of Cenvat credit under Rule 14 of Cenvat Credit Rules, 2004

The Revenue sought to recover the Cenvat credit under Rule 14 of Cenvat Credit Rules, 2004, along with interest and penalty, based on the argument that the plastic laminated packing pouches became ineligible for use post the Supreme Court order. The Original Authority confirmed the demand, imposing interest and penalty. The Commissioner (Appeals) set aside the penalty under Section 11A of the Central Excise Act, 1944. The Tribunal, after considering the validity of the credit availed and the continuous use of inputs, held that recovery of validly taken Cenvat credit was beyond the scope of Rule 14 of Cenvat Credit Rules. The Tribunal set aside the Show Cause Notice, Order-in-Original, and Order-in-Appeal, allowing the appeal.

Issue 3: Imposition of interest and penalty under Central Excise Act, 1944

The Revenue proposed charging interest and imposing a penalty under the Central Excise Act, 1944, in addition to recovering the Cenvat credit. The Original Authority confirmed the demand, including interest and penalty. The Commissioner (Appeals) set aside the penalty under Section 11A of the Act. The Tribunal, after analyzing the validity of the credit availed and the provisions of Rule 14 of Cenvat Credit Rules, 2004, concluded that the recovery of validly taken Cenvat credit was not covered under the said rule. Therefore, the Tribunal set aside the Show Cause Notice, Order-in-Original, and Order-in-Appeal, allowing the appeal and granting the appellant consequential benefits as per the law.