2019 (5) TMI 40 - AT - Central Excise

CENVAT Credit - reversal of amount of credit of input service lying in his account - whether the appellant availing the benefit of SSI exemption is required to reverse the amount of credit of input service lying in his account on that day under Rule 11(2) or otherwise? - HELD THAT - A plain reading of Rule 11(2) shows that the assessee who opts for benefit of SSI exemption is required to reverse the amount of credit of inputs lying in stock, lying in work-in-progress or used in the manufacture of final products lying in stock and thereafter if any balance is left, the same shall also lapse. Clearly, this rule did not cover the credit of input services or credit of CENVAT on capital goods. Therefore, the appellant is not required to reverse service tax credit availed by them on that day. There is no legal basis for the department to ask the appellant to reverse the CENVAT credit of input services - appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Applicability of Rule 11 of CENVAT Credit Rules, 2004 on reversal of credit.
2. Requirement to reverse input service tax credit under Rule 11(2).
3. Liability for payment of interest and penalties under Rule 14 and Rule 15 of CCR, 2004.

Analysis:
1. The appellant, a manufacturer of craft papers, availed CENVAT credit and the benefit of exemption notification for Small Scale Units under notification 04/2006-CE. The issue revolved around the transitional provision under Rule 11 of CENVAT Credit Rules, 2004, which mandates the reversal of CENVAT credit under certain circumstances. The appellant's transition between exemption and duty payment triggered the application of Rule 11(2), requiring the reversal of input credit in specific scenarios.

2. The appellant was required to reverse the input credit of inputs lying in stock, work-in-progress, or used in final products under Rule 11(2) upon opting for the SSI exemption. However, the rule did not encompass the reversal of input service tax credit or credit on capital goods. The appellant contested the demand for reversal of input service tax credit, arguing that Rule 11(2) did not mandate such action. The Tribunal, citing a precedent, upheld the appellant's position, ruling that there was no legal basis for reversing the input service tax credit, thereby setting aside the impugned order.

3. The lower authority confirmed the input CENVAT credit balance to be reversed and imposed penalties and interest. The appellant challenged this decision, asserting that they were not liable to reverse input service tax credit or pay interest and penalties under Rule 14 and Rule 15 of CCR, 2004. The Tribunal concurred with the appellant's interpretation of Rule 11(2) and ruled in their favor, allowing the appeal and setting aside the lower authority's decision, thereby relieving the appellant of the liability for reversal of input service tax credit and associated penalties and interest.

This comprehensive analysis highlights the critical legal issues addressed in the judgment, emphasizing the application and interpretation of Rule 11 of CENVAT Credit Rules, 2004, and its implications on the reversal of input credit for manufacturers availing exemptions.