2017 (11) TMI 752 - AT - Central Excise

CENVAT credit - area based exemption - denial on the ground that the capital goods have been exclusively used for the manufacture of exempted goods - Held that - appellant has enjoyed w.e.f. 03.12.2004 the benefit of area based exemption under notification no.49/03 & 50/03 dated 10.06.2003. Prior to that, the capital goods were installed and utilize, when the appellant was paying the duty and not availing the benefit of the area based exemption - Identical issue has come up before this Tribunal in the case of Cheema Papers Ltd. Vs. CC Meerut 2017 (6) TMI 468 - CESTAT NEW DELHI , where it was held that 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.

Summary

Issues:
- Admissibility of Cenvat Credit on capital goods exclusively used for manufacturing exempted goods
- Interpretation of Modvat Scheme provisions regarding reversal of credit when end product becomes exempt
- Applicability of previous Tribunal decisions on similar issues

Analysis:

Issue 1: Admissibility of Cenvat Credit on capital goods exclusively used for manufacturing exempted goods
The appellant, engaged in the manufacture of Vacuum Pan Sugar and Molasses, purchased capital goods during the disputed period and availed Cenvat Credit on them. The Department contended that the credit was inadmissible as the capital goods were used exclusively for manufacturing exempted goods. However, the Tribunal referred to a previous case involving a similar scenario and held that the appellant's entitlement to Cenvat Credit was valid, even if they later opted for area-based exemption. The Tribunal emphasized that the credit obtained by the manufacturer for excise duty paid on raw material is indefeasible unless illegally taken, and can be utilized without time limitations unless the manufacturer chooses not to use the raw material in the final product.

Issue 2: Interpretation of Modvat Scheme provisions regarding reversal of credit when end product becomes exempt
The Departmental Representative argued that under the Modvat Scheme, the availing of credit was not irrevocable, and if the end product became exempt from duty, the credit entry had to be reversed even if already utilized. However, the Tribunal found that the Supreme Court's decision in Dai Ichi Karkaria Ltd. established the indefeasibility of credit once validly taken, and rejected the argument that subsequent exemption of the final product required reversal of credit. The Tribunal distinguished the cases cited by the Departmental Representative, emphasizing that they did not pertain to the specific issue at hand.

Issue 3: Applicability of previous Tribunal decisions on similar issues
The Tribunal relied on its earlier decision and the Supreme Court's ruling in Dai Ichi Karkaria Ltd. to support its conclusion that the appellant was entitled to the Cenvat Credit on capital goods, despite subsequently opting for area-based exemption. By aligning with the precedent set in previous cases, the Tribunal set aside the impugned order and allowed the appeal filed by the appellant, emphasizing the validity and indefeasibility of the credit obtained on raw material for excise duty payment.