2008 (1) TMI 126 - AT - Central Excise

Tractors became exempted from Excise duty w.e.f. 9-7-04 - Whether input credit taken, when final product was dutiable, needn t be reversed on time final product becoming exempt from payment of duty w.e.f. 9-7-04 Whether input credit taken in respect of inputs in stock or in process or contained in final product in stock on 9-7-04 is to be reversed & is to be recovered if adequate credit isn t in balance conflicting views of coordinate Benches of Tribunal matter referred to larger bench

Summary

Issues Involved:
- Whether the Cenvat credit on inputs used in the manufacture of tractors lying in stock was required to be reversed after the tractors were exempt from duty.
- Interpretation of conflicting decisions by CESTAT Bangalore and CESTAT Chennai.
- Application of Rule 57AD of the Central Excise Rules, 1944 regarding Cenvat credit on inputs used in exempted goods.

Analysis:

Issue 1: Reversal of Cenvat Credit on Exempted Tractors:
- The appeals involved a common issue of whether Cenvat credit on inputs used in the manufacture of tractors lying in stock needed to be reversed after tractors became exempt from duty. The conflicting decisions by CESTAT Bangalore and CESTAT Chennai were highlighted.
- CESTAT Bangalore held that credit need not be reversed when final products are exempted if credit was validly taken when the products were dutiable. On the other hand, CESTAT Chennai ruled that credit on inputs in stock or used in the final product must be reversed if not in balance.
- Reference was made to the Supreme Court's ruling in Dai Ichi Karkaria case emphasizing the indefeasible nature of credit once validly taken, unless the manufacturer chooses not to use the raw material in the excisable product.

Issue 2: Interpretation of Legal Precedents:
- Both tribunals referred to legal precedents like the case of Ashok Iron and Steel Fabricators and Albert David Ltd. to support their interpretations. The Supreme Court's dismissal of appeals related to these cases was noted.
- The conflicting interpretations of Rule 57AD of the Central Excise Rules, 1944, and its impact on Cenvat credit were discussed. Rule 57AD prohibits credit on inputs used in exempted goods.

Issue 3: Referral to Larger Bench:
- Due to the conflicting orders by CESTAT Bangalore and CESTAT Chennai, the matter was referred to the Hon'ble President for constituting a Larger Bench to resolve the issue.
- The key question for determination was whether the decision by CESTAT Bangalore or CESTAT Chennai enunciates the correct position of law regarding the reversal of input credit on exempted goods.

In conclusion, the judgment highlighted the need for clarity on the reversal of Cenvat credit on inputs used in the manufacture of exempted goods, leading to the referral of the matter to a Larger Bench for resolution. The conflicting interpretations by different tribunals and the application of relevant legal precedents underscored the complexity of the issue at hand.