2019 (10) TMI 367 - AT - Central Excise

Validity of SCN - Reversal of CENVAT credit - removal of inputs as such - reversal of credit demanded on the inputs lying in stock, treating it at par with the goods removed as such, at the time of closure of their unit - applicability of provisions of sub-rule 3(5) of CCR Rules, 2004 - HELD THAT - It is an admitted fact that the appellants have not removed any inputs as such. Rule 3(5) applies or provides for reversal of duty on inputs, which are removed as such. Thus, the show cause notice is mis-conceived as the same is issued alleging that Rule 3(5) of CCR is applicable. Further, the SION norms are not applicable in the facts and circumstances - It is not the case of the Revenue that the appellants have not maintained proper records of receipt of inputs and its utilization. Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Revocation of registration of a new manufacturing unit availing Area Based Exemption.
2. Alleged mis-use of Area Based Exemption due to common ownership and shared raw materials between two units.
3. Demand for reversal of cenvat credit on inputs at the time of closure of the unit.
4. Application of Standard Input Output Norms (SION) for determining closing stocks of inputs.
5. Adjudication of show cause notice confirming demand with interest and penalty.
6. Appeal before the Commissioner (Appeals) challenging the demand for reversal of cenvat credit.
7. Interpretation of Rule 3(5) and Rule 11 of the Cenvat Credit Rules, 2004.
8. Tribunal's decision on the applicability of Rule 3(5) and SION norms in the case.

Analysis:

1. The appellant, engaged in manufacturing PVC products, had a new unit adjoining the existing one availing Area Based Exemption. The registration of the new unit was revoked due to concerns of mis-use of the exemption, as both units had common ownership and shared raw materials.

2. The Revenue demanded reversal of cenvat credit on inputs at the time of closure, suspecting high unutilized credit balance. The appellant's failure to provide closing balance information led the Revenue to apply SION norms for calculating the credit to be reversed, resulting in a demand for recovery under CCR Rules.

3. The show cause notice was contested, and the demand was confirmed with interest and penalty. The Commissioner (Appeals) upheld the demand, citing Rule 3(5) for reversing duty on inputs. The appellant argued no duty could be demanded as no inputs were removed, relying on a Supreme Court ruling.

4. The Tribunal found the show cause notice mis-conceived as Rule 3(5) did not apply since no inputs were removed. SION norms were deemed inapplicable, and Rule 11 of CCR, requiring reversal of unutilized cenvat credit on exempt final products, was considered relevant. The appeal was allowed, setting aside the demand and granting consequential benefits, including refund of pre-deposits.

5. The judgment clarified the distinction between Rule 3(5) and Rule 11 of CCR, emphasizing the obligation to reverse unutilized credit on exempt final products. The decision favored the appellant, highlighting the misapplication of rules and norms by the Revenue, leading to the setting aside of the demand and granting of relief to the appellant.