2017 (6) TMI 468 - AT - Central Excise

CENVAT credit - area based exemption - recovery of credit on the ground that such capital goods were utilized in the manufacture of fully exempted finished products - Held that - at the time of procurement of the capital goods, the Appellants were manufacturing and clearing the finished products on payment of duty. Consequently, the CENVAT Credit on capital goods is allowable during the said period - The fact that from a subsequent date i.e. 07.08.2003 the Appellants opted for and started availing area base exemption will not disentitle them to the Cenvat Credit already availed - appeal allowed - decided in favor of appellant-assessee.

Summary

Issues:
Appeal against order-in-appeal for recovery of Cenvat Credit on capital goods used in manufacturing exempted finished products.

Detailed Analysis:
The Appellants manufactured Duplex Paper Board under Chapter 48 and availed Cenvat Credit on certain capital goods during the period of dispute from April 2002 to July 2003. The authorities ordered recovery of the total Cenvat Credit availed, amounting to ? 28,25,516, as the capital goods were used in manufacturing fully exempted finished products. The Appellants contended that they were entitled to Cenvat Credit on the duty paid on capital goods as they were clearing goods on payment of duty at the time of procurement. They argued that even though they later opted for area-based exemption, it should not disentitle them from the Cenvat Credit already availed.

The Department supported the impugned order, stating that the capital goods were procured for substantial expansion to qualify for area-based exemption under Notification No. 49-50/2003. They relied on Rule 6(4) of the Cenvat Credit Rules, 2002, which disallows Cenvat Credit on goods exclusively used in manufacturing exempted products. However, the Appellants argued that they were entitled to Cenvat Credit during the disputed period when they were clearing finished products on payment of duty, regardless of later opting for area-based exemption.

The Tribunal referred to a decision in the case of Commissioner of Central Excise, Rajkot vs Ashok Iron & Steel Fabricators, where it was held that a manufacturer obtains credit for excise duty paid on raw material immediately upon making the requisite declaration, and the credit is indefeasible unless illegally taken. The Tribunal also noted that the Departmental Representative's arguments on Modvat credit reversals were not applicable to the current issue. It was concluded that the impugned order was not sustainable, and the appeal was allowed, setting aside the recovery of Cenvat Credit on capital goods.

Therefore, the Tribunal held that the Appellants were entitled to Cenvat Credit on capital goods during the disputed period when they were clearing finished products on payment of duty, even though they later opted for area-based exemption. The decision was based on the manufacturer's right to credit on excise duty paid on raw material and the absence of a provision for reversal of credit unless illegally taken. The appeal was allowed in favor of the Appellants.