2009 (4) TMI 231 - AT - Central Excise

By the impugned order, the Commissioner (Appeals) held that the Modvat credit on the inputs contained in finished goods lying in stock/work in process at the time of exercise of option of exemption notification is not available to the appellants. - The Tribunal in the case of APCO Pharma Limited v. CCE, Meerut following the Larger Bench decision in the case of HMT & Others v. CCE, Panchkula held that the credit has been taken validly and validly utilized and therefore, there is no question for reversal of the credit while opting the exemption notification - respectfully following the decision of the Tribunal in the case of APCO Pharma Limited, Impugned order is not sustainable. Accordingly, the impugned order is set aside and the appeal is allowed

Summary

Issues:
- Reversal of Modvat credit on inputs used in the manufacture of exempted goods under specific notifications.
- Availability of Modvat credit on inputs contained in finished goods at the time of opting for exemption notification.

Analysis:
1. Reversal of Modvat credit on inputs for exempted goods:
The case involved appellants engaged in manufacturing Plyboard and Articles of Wood classified under Heading No. 4408.90 and 4410.11. Show cause notices were issued to reverse the credit of Rs. 1,43,169 on inputs used in the manufacture of exempted goods under Notification No. 49/2003 and 50/2003. The Original Authority initially dropped the duty demand, but the Revenue appealed before the Commissioner (Appeals). The Commissioner held that Modvat credit on inputs in finished goods at the time of opting for exemption is not available to the appellants.

2. Availability of Modvat credit on inputs in finished goods:
Upon review, it was found that a similar issue had been addressed by the Tribunal in the case of M/s. APCO Pharma Limited. In that case, it was established that the credit taken and utilized on dutiable final products legally did not need to be reversed if the final product later became exempt. Citing the Larger Bench decision in the case of HMT & Others, the Tribunal concluded that the credit, once validly taken and utilized, should not be reversed upon opting for an exemption notification. Several other Tribunal decisions supported this view, emphasizing that the credit taken on dutiable final products need not be reversed when those products become exempt subsequently.

In conclusion, the Tribunal found that the impugned order was not sustainable and set it aside, allowing the appeal with consequential relief. The decision was based on the principle that the Modvat credit on inputs used in the manufacture of exempted goods did not need to be reversed if the credit was validly taken and utilized on dutiable final products. The judgment highlighted the importance of the timing of credit entitlement and utilization, ensuring that legitimate credits are not subject to recovery or reversal based on subsequent changes in product classification or exemption status.