2002 (11) TMI 144 - AT - Central Excise

Summary

Issues involved: Whether Cenvat credit is to be reversed if finished product becomes exempted from duty.

Summary:
The Appeal filed by M/s. Albert David Ltd. raised the issue of whether Cenvat credit should be reversed if the finished product becomes wholly exempted from duty after the credit is availed. The Appellants manufactured P & P medicines and availed Cenvat credit of duty paid on inputs under Rule 57AA of the Central Excise Rules, 1944. The Deputy Commissioner confirmed a demand and imposed a penalty, stating that Cenvat credit is not available for inputs used in the manufacture of exemption goods. The Commissioner (Appeals) upheld this decision, citing Rule 57AD which disallows credit on inputs used in the manufacture of exempted goods.

Shri D. Chitlangia argued that the credit was validly taken before the exemption of the finished product, relying on legal provisions and court decisions. He contended that no provision exists for reversing legitimately availed credit when finished goods are later exempted from duty. On the other hand, Shri R.D. Negi argued that once the final product becomes exempted, claiming that inputs were used in relation to dutiable goods is irregular. He emphasized Rule 57AD(1) which prohibits credit on inputs used in the manufacture of exempted goods, citing a decision of the Allahabad High Court to support this stance.

The Tribunal considered both arguments and concluded that as the inputs were used in the manufacture of wholly exempted goods, the Cenvat credit taken for those inputs is recoverable. The demand was found to be within the time limit specified in the Act and Rules, and no penalty was imposed on the Appellants. The decision clarified that the specific provision in Rule 57AD disallows credit on inputs used in the manufacture of exempted goods, leading to the recovery of wrongly utilized credit in such cases. The Appeal was disposed of accordingly.