2017 (2) TMI 1140 - AT - Central Excise

Reversal of CENVAT credit - whether appellant is required to reverse Cenvat Credit on inputs in a situation where at the time availing Cenvat Credit, the final product is dutiable but on later stage, the final product become exempted or not? - Held that - The said issue came up before Hon ble High Court of Punjab & Haryana in the case of CCE, Panchkula Vs. HMT (TD) 2010 (4) TMI 1036 - PUNJAB AND HARYANA HIGH COURT wherein it was held that at the time of availment of Cenvat Credit on inputs, the final product is dutiable, later on the final product became exempt, in such a situation, Cenvat Credit is not required to be reversed - the appellant is entitled for refund claim - appeal allowed - decided in favor of appellant.

Summary

Issues:
Refund claim rejection based on Cenvat Credit reversal requirement when final product becomes exempt.

Analysis:
The appellant, involved in manufacturing Pet Jars/Bottles/Cans for Mustard Oil, availed Cenvat Credit on inputs. Upon realizing the exemption of their manufactured goods under Notification No. 10/96-C.E., they ceased duty payments and surrendered their Registration Certificate. The Revenue pointed out the duty deposit on Cenvat Credit-involved inputs, leading to a refund claim rejection by both authorities. The appellant contended that as per a Punjab & Haryana High Court ruling, they are not obligated to reverse Cenvat Credit if the final product becomes exempt at a later stage.

The core issue revolved around whether the appellant should reverse Cenvat Credit on inputs when the final product, initially dutiable during availing of credit, later becomes exempt. Citing the High Court's judgment in CCE vs. HMT (TD), the Tribunal emphasized that if duty was paid on inputs during the manufacturing of final goods and proper records were maintained, the Cenvat Credit need not be reversed upon subsequent exemption of the final product. As no contrary judgment was presented, the Tribunal upheld the legal principle that Cenvat Credit reversal is unnecessary in such scenarios.

Consequently, the Tribunal ruled in favor of the appellant, ordering the refund of the amount paid for reversing Cenvat Credit along with interest. The appellant was deemed entitled to the refund claim, and the impugned order rejecting the claim was set aside. The appeal was allowed with any necessary consequential relief, affirming the appellant's right to the refund based on the legal interpretation provided by the High Court precedent.