2018 (3) TMI 684 - AT - Central Excise

Refund claim - Rule 11 (2) of the Cenvat Credit Rules, 2004 - appellants deposited an amount equivalent to the Cenvat Credit (including Cess) allowed to them in respect of inputs lying in stock or in process or contained in final products lying in stock on the date of switch over - Held that - Rule 11(2) as well as Rule 11(3) do not deal with a situation in which the balance in the cenvat credit is not adequate to cover the duty attributable to the inputs as well as finished products in stock on the date of opting out of cenvat credit scheme - there is no requirement for the appellants to pay the balance amount in cash. Consequently, they will be entitled to the refund of such amount, if already paid - appeal allowed - decided in favor of appellant.

Summary

Issues:
Refund claim denial based on Rule 11(2) of Cenvat Credit Rules, 2004.

Analysis:
The appellants, engaged in manufacturing excisable goods, opted out of the Cenvat Credit scheme and switched to exemption based on clearances' value under a specific notification. The dispute revolved around Rule 11(2) of the Cenvat Credit Rules, 2004, requiring payment equivalent to the credit allowed on inputs in stock or finished products upon opting out. The department denied refund claims, asserting the balance payment obligation. The appellants contended that no balance payment was necessary after deducting the available credit balance. They cited the Punjab & Haryana High Court's decision in Commissioner Vs. C N C Commercial Ltd., emphasizing the absence of a one-to-one relationship between inputs and final products for credit reversal. Similarly, the Supreme Court's ruling in Sonalac Paints & Coatings Ltd. Vs. CCE clarified that Rule 57AG(2) did not mandate debiting the Modvat credit balance before opting for exemption under a notification.

The judgments highlighted that Rule 11(2) did not address situations where the credit balance was insufficient to cover duty on inputs and finished products. Following the precedent set by the Punjab and Haryana High Court and the Supreme Court, the Tribunal concluded that appellants were not obligated to pay any balance amount in cash. Therefore, they were entitled to a refund if already paid. Consequently, the Tribunal allowed the appeals, setting aside the impugned orders.

This detailed analysis of the judgment showcases the interpretation and application of Rule 11(2) of the Cenvat Credit Rules, 2004, in the context of opting out of the Cenvat Credit scheme and switching to duty exemption based on clearances' value. The reliance on previous court decisions provided a legal basis for the appellants' argument against the balance payment requirement, ultimately leading to a favorable outcome in the appeals.