2018 (11) TMI 823 - AT - Central Excise

Reversal of CENVAT Credit with Interest - reversal at Tribunal stage - Held that - Dealing with an identical situation, the Hon ble High Court observed that reversal of Modvat Credit amounts to non-taking of credit and as such, the benefit of exemption notification cannot be denied on the ground that such reversal was done at the Tribunal stage - appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Availment of service tax credit impacting eligibility for SSI exemption notification.
2. Denial of SSI exemption notification due to the reversal of Cenvat Credit.
3. Interpretation of legal precedents regarding the reversal of Modvat Credit and its impact on exemption notification eligibility.

Analysis:

1. The appellant, engaged in manufacturing packaged drinking water, availed the benefit of SSI exemption for their own branded goods but paid duty on goods manufactured for another person. The issue arose when the appellant utilized service tax credit for payment of duty on goods of the other person, leading to the denial of SSI exemption. The Revenue contended that availing service tax credit made the appellant ineligible for the exemption, resulting in the initiation of proceedings through a show-cause notice.

2. Despite the appellant's argument that the notification did not prohibit the use of Cenvat Credit for duty payment and citing relevant Tribunal decisions, the lower authorities upheld the duty demand, interest, and penalty. The Commissioner (Appeals) affirmed this decision, stating that the appellant's remedial action of reversing the Cenvat Credit did not absolve the contravention. The appellant then appealed this decision.

3. The Tribunal, in its analysis, noted that the reversal of Cenvat Credit along with interest was undisputed. However, the authorities did not grant the benefit of reversal, arguing that it was insufficient to warrant SSI exemption. The Tribunal referenced legal precedents, including the Allahabad High Court decision in Hello Minerals Water (P) Ltd. and the Gujarat High Court decision in CCE Vs. Ashima Dyecot Ltd., supported by the Supreme Court in CCE Vs. Precot Meridian Ltd., to establish that reversal of credit equated to non-availment, thus entitling the appellant to the exemption. Relying on these precedents, the Tribunal set aside the previous order, allowing the appeal in favor of the appellant with any consequential relief.

This detailed analysis of the judgment provides a comprehensive understanding of the issues involved and the Tribunal's decision based on legal interpretations and precedents cited during the proceedings.