2019 (2) TMI 931 - AT - Central Excise

CENVAT Credit - removal of inputs as such - input or not - Revenue has taken the view that the inputs procured for manufacture of Synthetic Detergent Powder, cannot be considered as inputs covered by the definition in Rule 2(k)(1) of the Cenvat Credit Rules - Held that - The definition of input covers all goods, which are utilized in the manufacture of final product in the assessee s factory. The assessee has procured various inputs, some of which were required for manufacture of Synthetic Detergent Powder. It so happened that the assessee did not actually commence the manufacture of this product while continuing with the manufacture of all other products in the factory. The inputs procured for the same, were cleared as such, since they could not be used in the manufacture. The Cenvat Credit Rules, 2004, provides for the circumstances, in which the inputs procured for manufacture, can be cleared as such. Rule 3 (4) subsequently provides for this scenario. It is specifically provided that when inputs are cleared as such, the manufacturer is required to reverse the amount equal to the cenvat credit taken on inputs. It is seen that the requirement of this Rule has been satisfied by the assessee - It is well settled position of law that once cenvat credit availed is reversed, it is to be considered as ab initio not availed - the assessee cannot be held to have availed cenvat credit irregularly in respect of inputs cleared as such. Demand of Interest - whether the assessee will be liable to pay interest on the cenvat credit availed on the inputs, which were never utilized in the manufacture? - Held that - The assessee did not utilize the credit availed on the un-used inputs before reversal of the same. Under such circumstances, no interest liability will arise on the assessee. Penalty - Held that - Since it is held that the credit availed cannot be held as irregular and no interest liability can be fastened on the assessee, there is no justification for imposition of penalty - penalty set aside. Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Whether the Cenvat credit availed on inputs cleared "as such" was irregular.
2. Whether interest is liable to be paid on the reversed Cenvat credit.
3. Whether penalty under Rule 15 of the Cenvat Credit Rules, 2004, should be imposed.

Detailed Analysis:

1. Irregularity of Cenvat Credit on Inputs Cleared "As Such":
The appellant assessee was engaged in the manufacture of various products, including Synthetic Detergent Powder, which was never actually manufactured. Inputs procured for this product were cleared "as such," and the Cenvat credit availed was reversed at the time of clearance. The Department argued that such inputs do not qualify as "inputs" under Rule 2(k)(1) of the Cenvat Credit Rules, 2004, and thus the credit availed was irregular. However, the Tribunal noted that Rule 3(4) of the Cenvat Credit Rules allows for the clearance of inputs "as such," provided the credit taken is reversed. Since the assessee reversed the credit at the time of clearance, the Tribunal concluded that the credit availed cannot be considered irregular. This view is supported by precedents such as Chandrapur Magnet Wires (P) Ltd. Vs. Collector and Commissioner Vs. Bombay Dyeing and Mfg. Co.Ltd.

2. Liability to Pay Interest on Reversed Cenvat Credit:
The lower authority had imposed interest on the reversed credit under Rule 14 of the Cenvat Credit Rules, 2004. The Tribunal observed that the credit was never utilized for the payment of duty on manufactured goods, as confirmed by the Adjudicating Authority. Therefore, the Tribunal held that no interest liability arises when the credit is reversed before utilization. This conclusion is supported by the decision in Sri Kumaran Alloys (P) Ltd., which states that mere wrong availment without utilization does not attract interest. The Tribunal emphasized that reversal of credit amounts to "no credit" being taken, thus negating the need for interest.

3. Imposition of Penalty under Rule 15 of the Cenvat Credit Rules, 2004:
The Department contended that a penalty under Rule 15(2) should be imposed in addition to the penalty already levied. The Tribunal, however, found no justification for any penalty since the credit was availed correctly and reversed before utilization. The Tribunal noted that penalties under Rule 15(1) or (2) are unwarranted in this context, as the actions of the assessee complied with the provisions of the Cenvat Credit Rules. Consequently, the Tribunal set aside the demand for interest and the imposition of penalties.

Conclusion:
The Tribunal modified the impugned order to the extent that the demand for interest and the imposition of penalties were set aside. The appeal filed by the Revenue was rejected, and the Cross Objection was disposed of. The Tribunal's decision underscores the importance of adhering to procedural requirements for reversing Cenvat credit and clarifies that interest and penalties are not applicable when credit is reversed before utilization.