2023 (8) TMI 177 - AT - Central Excise

Reversal of Cenvat credit lying unutilized in respect of ADE(T TA) in terms of transitional provision of Rule 11(3)(ii) of the Cenvat Credit Rules, 2004 - HELD THAT - The said Rule 11(3) has come into effect only with effect from 01.03.2007 therefore any credit availed prior to that and carried forward the same cannot be recovered by invoking Rule 11(3) as the said Rule does not have retrospective effect. It shall be applicable only in a case when any exemption notification is availed on or after 01.03.2007 when the Rule 11(3) came into effect - In the present case, the appellant s final product was exempted as well as credit of ADE(T TA) was lying during the period much before the insertion of Rule 11(3) in Cenvat Credit Rules. Therefore the said Rule cannot be applied and consequently ADE(T TA) cannot be demanded. The very same issue has been considered by this Tribunal in the case of IBM India Private Limited 2019 (11) TMI 299 - CESTAT CHENNAI , wherein the Tribunal has held that after the introduction of Rule 11(3) by Notification No. 10/2007 dt. 01.03.2007 the Tax Research Unit of CBEC has issued Circular No. 334/1/2007-TRU dt. 28.02.2007 clarifying that it will come into effect immediately. The letter does not suggest that Rule 11(3) was supposed to have retrospective effect. Therefore, we find that it has never been the intention to give retrospective application to Rule 11(3). The issue in hand has been addressed by the Tribunal in the above decision whereby it was held that Rule 11(3) of Cenvat Credit Rules, 2004 though provides for reversal of unutilized Cenvat credit but the same cannot be applied retrospectively in the absence of specific provision under the statute. The appellant is neither liable to reverse the accumulated Cenvat credit of ADE (T TA) nor the demand of the same is sustainable - Appeal allowed.

Summary

Issues Involved:
The issues involved in this case are the liability of the appellant to reverse the accumulated Cenvat credit of Additional Duty of Excise (Textile & Textile Articles) (ADE(T&TA)) and the sustainability of the demand for the same.

Liability to Reverse Cenvat Credit:
The appellant, engaged in the manufacture of Cotton Terry Towels, availed Cenvat credit on raw materials attracting ADE(T&TA). The department demanded reversal of the unutilized Cenvat credit of ADE(T&TA) invoking Rule 11(3) of the Cenvat Credit Rules, 2004. The appellant argued that Rule 11(3) was inserted in 2007 and cannot be applied retrospectively to credits earned before that. The Tribunal held that the Rule cannot be applied retrospectively and cited precedents to support this view. The Karnataka High Court also held that once input credit is legally taken, it need not be reversed upon exemption of the final product. Therefore, the appellant was not liable to reverse the accumulated Cenvat credit of ADE(T&TA) as the demand was not sustainable.

Time-Barred Demand:
The appellant contended that the demand was time-barred as the unutilized credit was declared in returns since 2004 when ADE(T&TA) was exempted. The show cause notice was issued in 2012, relating to the credit unutilized by 2004. The appellant argued that there was no suppression of facts. The Tribunal agreed with the appellant, stating that the extended period for demand was not applicable due to the long-standing declaration of the credit. Therefore, the demand was considered time-barred.

Precedents and Legal Interpretation:
The Tribunal referred to various judgments, including Modern Denim, Gokaldas Intimate Wear, and others, to support the appellant's argument that Rule 11(3) cannot be applied retrospectively. The Tribunal also cited a decision involving IBM India Private Limited, where it was held that Rule 11(3) does not have retrospective effect. The Karnataka High Court's decision in the case of Gokuldas Intimate Wear further supported the view that Cenvat credit need not be reversed upon exemption of the final product. These precedents and legal interpretations formed the basis for the Tribunal's decision in favor of the appellant.

Conclusion:
The Tribunal found that the appellant was not liable to reverse the accumulated Cenvat credit of ADE(T&TA) and that the demand for the same was not sustainable. The decision was based on the non-retrospective application of Rule 11(3) of the Cenvat Credit Rules, 2004, and supported by legal precedents and interpretations. Therefore, the impugned order was set aside, and the appeal was allowed.