2017 (1) TMI 699 - AT - Central Excise

100% EOU - De-bonding of unit - reversal of credit on input services - GTA services - Held that - At the time of debonding from the 100% EOU scheme, the appellant has already reversed an amount equal to the credit availed in respect of inputs and capital goods which were transferred to the DTA unit as per the provisions of Cenvat Credit Rules - There is no provision for reversal of Cenvat credit availed on input services at the time of debonding, inasmuch as the input services stand consumed, as soon as it was received. I have already held that the Cenvat credit on such input services stand availed properly on the date of receipt of the service. Hence there is no obligation on the part of the manufacturer to reverse credit in input services at the time of debonding from 100% EOU scheme - demand of reversal of input services not justified - appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Reversal of Cenvat credit on input services upon de-bonding from 100% EOU scheme.
2. Interpretation of Rule 6(1) of the Cenvat Credit Rules, 2004.
3. Compliance with Notification No. 30/2004-CE regarding exemption from excise duty.

Analysis:
1. The appellant, engaged in manufacturing cotton yarns and knitted fabrics, transitioned from a 100% EOU to a DTA unit, paying appropriate customs/excise duty on stock. The dispute arose when the appellant cleared goods under an exemption notification without paying excise duty on inputs procured earlier. The department alleged a violation of Rule 6(1) of the Cenvat Credit Rules, 2004, for not reversing credit on input services used in manufacturing exempted final products. The Commissioner (Appeals) upheld the allegations, disallowing Cenvat credit and imposing penalties. The appellant contended that credit availed on input services, when the appellant was a 100% EOU, was valid and need not be reversed post-debonding.

2. The crux of the issue lies in the interpretation of Rule 6(1) of the Cenvat Credit Rules, 2004. The appellant argued that as per the rule, credit availed on input services while operating as a 100% EOU, where duty was paid, should not be reversed upon de-bonding. The Tribunal agreed, stating that input services stand consumed upon receipt, and there is no obligation to reverse credit on input services at the time of debonding. The Tribunal emphasized that the appellant had already reversed credit on inputs and capital goods as required by the Cenvat Credit Rules. Therefore, the demand for reversal of input services credit was deemed unjustified.

3. Regarding compliance with Notification No. 30/2004-CE, which exempted certain goods from excise duty subject to conditions, the Tribunal found that the appellant had followed the provisions correctly. The Tribunal noted that the appellant had reversed duty on capital goods and inputs upon de-bonding, as required. The Tribunal ruled in favor of the appellant, setting aside the impugned order and allowing the appeal. The judgment clarified the application of Cenvat credit rules concerning input services upon transitioning from a 100% EOU to a DTA unit, emphasizing the consumption of input services upon receipt and the lack of obligation to reverse such credits during debonding.