2017 (2) TMI 297 - AT - Central Excise

CENVAT credit - whether the finished goods manufactured by the appellant, notified to be exempt with effect from 09.07.2004 disentitles the appellant to the Cenvat credit on inputs lying in stock, and inputs used in manufacture of finished goods prior to 09.07.2004 but such goods not cleared as on 09.07.2004 as well as input lying in work in progress (WIP) remaining in stock as on 09.07.2004? Held that - Law is well settled in Dai Ichi Karkaria Ltd. , that there is no provision in the rule to recover Cenvat credit in the event the goods manufactured prior to a cutoff date are cleared at a subsequent date. The Cenvat credit earned being permitted to be used with indefeasible right that cannot be denied in absence of any express provision of law in that behalf. None can say out of which raw material the finished product was manufactured and credit is not attributable to a specific input used in manufacture. One-to-one correlation not being contemplation of law, credit is available to a manufacture on very day when raw material reaches factory, with a right to set off such credit against liability to discharge duty on clearance of output - appeal allowed. Rule 8 of Cenvat credit Rules 2002 permitting carry forward of the unutilised Cenvat credit remained in the hands of the amalgamating company to be utilized by the amalgamated company, there is no question of any demand or recovery of the Cenvat credit amount from the appellant for which appeal is allowed.

Summary

Issues:
1. Dispute regarding exemption of finished goods manufactured by the appellant affecting Cenvat credit on inputs.
2. Whether Cenvat credit taken by the appellant on inputs used in manufacture should be allowed.
3. Denial of Cenvat credit by Revenue based on previous tribunal decisions.
4. Applicability of Cenvat Credit Rules, 2002 and 2004 on the case.
5. Interpretation of High Court and Supreme Court judgments in similar cases.
6. Legal principle of right vested by law and extinguishment of such rights.
7. Allegation of Revenue against entitlement to unutilized Cenvat credit of amalgamating company.

Analysis:

1. The main issue in the first part of the judgment revolves around the appellant's contention that the exemption of finished goods from duty starting from a specific date should not disentitle them from claiming Cenvat credit on inputs used in manufacturing those goods before the exemption date. The appellant argued that the Cenvat credit was taken as soon as the inputs reached the factory and should not be denied due to lack of one-to-one correlation between input and output.

2. The appellant relied on the decision of the Hon'ble High Court of Madras in a similar case to support their claim, emphasizing that the Cenvat credit availed before the exemption date should not be recoverable or reversed as per law. On the other hand, Revenue contended that previous tribunal decisions against the appellant, confirmed by the apex court, should lead to denial of credit for finished goods, work in progress, and input lying in stock as on the exemption date.

3. The Tribunal examined the facts and legal provisions, noting that the Cenvat Credit Rules, 2002, allowed credit as soon as inputs reached the factory without provisions to deny credit for goods in stock on the exemption date. The Tribunal highlighted the precedence of judgments, favoring the appellant's position based on a three-judge Bench decision over a two-judge Bench decision.

4. Additionally, the Tribunal emphasized the principle that rights vested by law can only be extinguished by authority of law, citing the issuance of a notification without retrospective effect and the absence of provisions to recover Cenvat credit on goods cleared after a cutoff date. The judgment underscored the availability of credit to manufacturers daily when raw materials reach the factory, with a right to set off against duty liability upon output clearance.

5. In the second part of the judgment, the issue centered on the Revenue's allegation that the appellant was not entitled to unutilized Cenvat credit of an amalgamating company due to a change in status. However, Rule 8 of the Cenvat Credit Rules, 2002, permitted the carry forward of unutilized credit from the amalgamating company to the amalgamated company, leading to the Tribunal allowing the appeal based on the specific legal provision.

This comprehensive analysis of the judgment addresses all the issues raised, the arguments presented by both parties, and the legal principles applied by the Tribunal in reaching its decision.