2017 (2) TMI 837 - AT - Central Excise

CENVAT credit - failure to reverse the credit before switching over to the exemption N/N. 30/2004-C.E. dated 29.7.2004 from 1.7.2007 - appellant s claim that the amendment to Rule 11(3) which was brought into effect from 01.3.2007, by virtue of N/N. 10/2011-Central Excise(NT) dated 1.3.2007, being prospective and not retrospective in operation, the credit need not be reversed - Held that - matter is remanded to the adjudicating authority to ascertain the fact whether the appellant had utilized the inputs procured before or after 01.3.2007 in the manufacture of goods and decide the issue afresh - appeal allowed by way of remand.

Summary

Issues involved:
1. Availing CENVAT credit prior to switching over to an exemption notification.
2. Interpretation of the retrospective or prospective nature of an amendment to Rule 11(3) of the Central Excise Rules.
3. Requirement to reverse CENVAT credit based on the timing of input procurement and utilization.

Detailed analysis:
Issue 1: The appellant was engaged in the manufacture of Cotton Fabrics, Man-made fabrics, and Made-up articles. They availed CENVAT credit of ?10,17,810 in May 2007 to June 2007 but failed to reverse the same before switching over to exemption Notification No.30/2004-C.E. dated 29.7.2004 from 1.7.2007. Both authorities confirmed the demand based on this non-reversal.

Issue 2: The appellant argued that the amendment to Rule 11(3), which required the reversal of CENVAT credit, was brought into effect from 01.3.2007 and was prospective, not retrospective. Citing a judgment by the Karnataka High Court, they contended that the credit availed prior to 01.3.2007 did not need to be reversed.

Issue 3: The Revenue contended that it was unclear whether the inputs procured were utilized before or after 01.3.2007 in the manufacture of goods. They suggested remanding the matter to the adjudicating authority to ascertain this fact.

The judgment clarified that the amendment to Rule 11(3) was prospective, coming into effect from 01.3.2007. As the period in question was before this date, the appellant was entitled to the benefit of CENVAT credit for inputs contained in work in progress and semi-finished products. The judgment favored the appellant, stating that the substantial questions of law were answered in their favor against the Revenue. The matter was remanded to the adjudicating authority to determine whether the inputs were utilized before or after 01.3.2007, with an opportunity for the appellant to present their case. The appeal was allowed by way of remand.