2018 (7) TMI 777 - AT - Central Excise

CENVAT/MODVAT Credit - common inputs used in manufacture of exempted final products some of which was reversed on proportionate basis remaining part of Modvat credit was reversed after many years - Rule 57CC of Central Excise Rules 1944 - period involved is 01.09.1996 to 31.03.1999 - in respect of one item such reversal was made only in April 2002. Held that - At the relevant time the entitlement of the appellants to reverse the credit to the extent of common inputs used in the manufacture of exempted final products was in doubt. However subsequently Rule 57CCC was inserted in the Central Excise Rules 1944 through Finance Act 2010 for reversal of actual credit by the manufacturer availing the credit of specified duty in respect of inputs used for manufacture of final product which are not chargeable to duty or chargeable to nil rate of duty by payment of amount equivalent to amount of credit attributable to inputs used in the manufacture of such final products - said amendment was retrospective in nature and covers the impugned period in this appeal. It has not been disputed by the Revenue that the appellants have reversed the credit taken in respect of inputs though admittedly one reversal of 34, 827/- was made in April 2002 and the other reversals were made before the issuance of show cause notice - the demand on account of disputed Modvat credit which has already been reversed by the appellants is liable to be set aside. In view of Rule 57CCC and statutory scheme introduced in Finance Act 2010 the appellants are liable to pay an interest @24% per annum for the intervening period from the date of clearance of goods till the date of reversal of the said Modvat credit. The demand of interest is confirmed for the intervening period from the date of clearance of goods till the date of reversal of Modvat credit - demand of disputed Modvat credit and the penalty are dropped - appeal allowed in part.

Issues:
1. Irregular availment of Modvat credit on common inputs used in the manufacture of exempted final products.
2. Applicability of Rule 57CCC introduced through Finance Act, 2010.
3. Liability to pay interest on reversed Modvat credit.
4. Imposition of penalty in the absence of specific provision under the statutory scheme.

Analysis:
1. The appellants were involved in manufacturing parts of various products using common inputs for both dutiable and exempted final products. They were required to maintain separate inventory and accounts for these inputs. A dispute arose regarding the irregular availment of Modvat credit on common inputs used in the manufacture of exempted final products, leading to a demand raised under Rule 57CC of Central Excise Rules, 1944.

2. The appellants contended that they had reversed most of the Modvat credit before the issuance of the show cause notice, except for a specific amount reversed in April 2002. They relied on the retrospective application of Rule 57CCC introduced through the Finance Act, 2010, allowing for proportionate reversal of actual credit attributable to inputs used in exempted final products. The Tribunal acknowledged the retrospective nature of the amendment and the applicability of the rule to the impugned period in the appeal.

3. The Tribunal held that the appellants were liable to pay interest at 24% per annum for the period from the date of clearance of goods till the date of reversal of the Modvat credit, in accordance with the statutory scheme introduced in the Finance Act, 2010. The interest was imposed due to the irregular availment of credit and subsequent reversal of the same.

4. Regarding the imposition of a penalty, the Tribunal noted that the statutory scheme aimed to regularize the credit availed on inputs used in exempted goods did not provide for any penalty. As a result, the penalty was dropped, and only the demand of interest for the intervening period was confirmed, while the demand for disputed Modvat credit and the penalty were both dropped.

In conclusion, the appeal was disposed of with the confirmation of interest payment and the dropping of the demand for disputed Modvat credit and penalty, in line with the provisions of Rule 57CCC and the statutory scheme introduced in the Finance Act, 2010.

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