2006 (1) TMI 20 - AT - Central Excise

Central Excise Cenvat credit No proviso for reversal of credit when remission of duty allowable in respect of finished goods

Summary

Issues:
Appeal against order directing reversal of Cenvat credit on inputs in unmarketable finished goods.

Analysis:
The case involved the appellants, manufacturers of cables, who availed Cenvat credit on inputs but later found their final products to be unmarketable. The Commissioner directed them to destroy the finished products and reverse the Cenvat credit on inputs, except for two conditions. The appellants challenged this direction in the appeal.

The appellants argued that the Commissioner's reliance on a circular was misplaced as it did not apply to their situation. They highlighted that the finished goods were not lost in fire, and they did not receive any insurance compensation. They cited case laws to support their contention that remission of duty on finished goods does not mandate reversal of Cenvat credit on inputs.

The Departmental Representative supported the Commissioner's decision based on the circular and a previous case. The circular required reversal of Cenvat credit on inputs when duty on finished goods is remitted. The Tribunal considered both arguments and examined the records.

The Tribunal noted that the duty remission on unmarketable finished goods was granted as per Central Excise Rules. The circular requiring reversal of Cenvat credit was based on a previous case where the assessee had been compensated for the loss. In the present case, the appellants suffered losses without adequate compensation, making the reversal unjust.

The Tribunal referenced another case to emphasize that Cenvat credit should not be reversed unless under specific circumstances outlined in the rules. Since the appellants did not wrongly avail the credit, the direction to reverse it was deemed unfair and against established law.

Referring to a Supreme Court decision, the Tribunal reiterated that validly taken Cenvat credit should not be reversed unless illegally obtained. The order directing the reversal of Cenvat credit on inputs in finished goods was deemed baseless and contrary to legal principles.

Ultimately, the Tribunal set aside the portion of the Commissioner's order directing the reversal of Cenvat credit on inputs in finished goods. The appeal was allowed in favor of the appellants.