2017 (3) TMI 1146 - AT - Central Excise

Refund claim - utilisation of the exempted goods in the manufacture of the final products which have been exported - denial on the ground that since the goods were exempted as on 1-3-2002 refund claim is not maintainable - Whether the appellant is liable to reverse/pay Cenvat Credit on the inputs already used in the manufacture of final product when it was dutiable but lying in stock as on 1-3-2002 when final product became exempted? - Held that - issue has been settled in the larger judgment in case of Ashok Iron 2002 (1) TMI 91 - CEGAT, NEW DELHI that Cenvat credit in respect of input contained in the final product lying in stock as on date when final product became exempted, no Cenvat credit is required to be reversed on the ground that at the time of taking credit the input used in the manufacture of final product which was dutiable. Whether the appellant is required to reverse the Cenvat credit on the input lying in stock as on 1-3-2002 but subsequently used in the manufacture of final product which was cleared for export under bond/undertaking? - Held that - the credit on such input is admissible to the appellant in terms of Rule 6 of CCR, 2004 - reliance was placed in the case of Godrej Food Vs. CCE 2016 (10) TMI 759 - CESTAT MUMBAI - appellant is not required to reverse/pay the Cenvat amount attributed to the input contained in finished goods lying in stock as on 1-3-2002 as well as on the input lying in stock as on 1-3-2002 but used in the manufacture and clearances of export goods. Appeal allowed - decided in favor of appellant.

Issues Involved:
1. Reversal of Cenvat Credit on inputs used in the manufacture of final products that were dutiable but lying in stock when final products became exempted.
2. Reversal of Cenvat Credit on inputs lying in stock but subsequently used in the manufacture of final products cleared for export under bond/undertaking.
3. Entitlement to refund of the amount reversed/paid on both the above counts.

Detailed Analysis:

Issue 1: Reversal of Cenvat Credit on Inputs Used in Manufacture of Final Products
The judgment addresses whether the appellant is liable to reverse/pay Cenvat Credit on inputs used in the manufacture of final products that were dutiable but lying in stock as of March 1, 2002, when the final products became exempted. The tribunal relied on the larger bench judgment in the case of Ashok Iron, which established that Cenvat credit on inputs contained in the final product lying in stock when the final product became exempted does not need to be reversed. The reasoning is that at the time of taking credit, the inputs were used in the manufacture of dutiable final products, thus no reversal is required.

Issue 2: Reversal of Cenvat Credit on Inputs Lying in Stock Used for Export
The tribunal examined whether the appellant needed to reverse the Cenvat credit on inputs lying in stock as of March 1, 2002, but subsequently used in the manufacture of final products cleared for export under bond/undertaking. The tribunal concluded that the credit on such inputs is admissible under Rule 6 of the Cenvat Credit Rules, 2004, and supported by various judgments cited by the appellant. The tribunal referred to the case of Godrej Food Vs. CCE, where it was held that there was no requirement for reversal of credit on inputs lying in stock when the final product became exempted.

Issue 3: Entitlement to Refund of Reversed/Paid Amount
The tribunal considered whether the appellant is entitled to a refund of the amount reversed/paid on both the above counts. The tribunal noted that the specific provision for reversal of credit on inputs lying in stock was introduced under Rule 11(3) of the Cenvat Credit Rules, 2004, effective from March 1, 2007. Before this provision, there was no requirement for reversal of credit on inputs lying in stock when the final product became exempted. The tribunal cited several judgments, including those from the Supreme Court and High Courts, which consistently held that validly taken credit need not be reversed when the final product becomes exempted.

The tribunal concluded that the appellant is not required to reverse/pay the Cenvat amount attributed to inputs contained in finished goods lying in stock as of March 1, 2002, nor on inputs lying in stock but used in the manufacture and clearance of export goods. Consequently, the impugned order rejecting the appellant's claim was set aside, and the appeal was allowed with consequential relief in accordance with the law.

Conclusion:
The tribunal's decision aligns with established legal precedents that validly taken Cenvat credit need not be reversed when the final product becomes exempted, provided the inputs were used in the manufacture of dutiable final products or for export under bond/undertaking. The appellant's claim for a refund of the reversed/paid amount was upheld, and the appeal was allowed.

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