2010 (4) TMI 390 - AT - Central Excise

Cenvat credit- Inputs- Area based exemption- The appellants are engaged in manufacture of medicament classifiable under Chapter 29 and 30 of the First Schedule of the Central Excise Tariff Act, 1985, having their unit located in the state of Himachal Pradesh. The appellants undertook expansion programme at their factory in order to avail benefit of the exemption of duty liability on the finished goods under Notification No. 50/2003-C.E., dated 10-6-2003. 3. according to the department, as per the Cenvat Credit Rules, the credit in respect of the duty paid on the inputs is admissible provided it is availed and utilized in or in relation to the manufacture of final goods which are not exempt from payment of duty. Therefore, a show cause notice dated 21-11-2005 came to be issued to the appellants in relation to such stock of inputs available with them on which cenvat credit of Rs. 7,69,52,504/- was sought to be wrongly availed. Held that-credit utilization gets completed on use of credit for payment of duty on final product and use of credit availed goods. Availability of rebate on inputs used in export goods by unit availing area based exemption not a reason to avail credit contrary to provision. Credit can not be said as non-reversible when final product exempted. Lapsing of credit on inputs lying in stock on day of opting for exemption not restricted to situations mentioned in Rule 6(6) of Cenvat Credit Rules, 2004 but Rule 3 not considered in the impugned order. Matter remanded to adjudication authority for fresh decision based on observations in present order.

Issues Involved:
1. Whether the cenvat credit availed on the inputs being in stock on the day the assessee opts for exemption from payment of duty under Notification No. 50/03 dated 10-6-2003 is required to be reversed?
2. Whether the above issue already stands answered and concluded by the decisions of the Larger Bench in Ashok Iron and HMT cases?
3. Whether an exemption notification should specifically provide for non-availability of cenvat credit facility in relation to the duty paid on inputs which are to be utilized in the goods availing the exemption benefit under such notification?
4. Whether the goods cleared for export under bond cannot be considered as the exempted goods, and that therefore, the manufacturer thereof are entitled to avail the cenvat credit in respect of duty paid on the inputs utilized in manufacture of such final goods, and that whether the appellants are entitled for the rebate as sought to be contended?
5. Whether in the facts and circumstances of the case, the quantification of duty has been correctly done or not?

Issue-wise Detailed Analysis:

1. Reversal of Cenvat Credit on Inputs in Stock:
The Tribunal held that the cenvat credit availed on inputs in stock on the day the assessee opts for exemption from payment of duty under Notification No. 50/03 dated 10-6-2003 is required to be reversed. The Tribunal emphasized that the credit can be lawfully earned only on those inputs which are to be used in dutiable and non-exempted final products. Rule 6(1) of the Cenvat Credit Rules, 2004 specifies that no credit of duty paid on inputs shall be allowed if the final product is exempt from the whole of the duty of excise leviable thereon or is chargeable to nil rate of duty. The Tribunal cited several decisions, including the Allahabad High Court's decision in Super Cassettes Industries Limited, which held that the modvat credit taken in respect of inputs which are in stock as well as in respect of inputs used in the manufacture of final products which have become exempt, would be inadmissible and will have to be reversed.

2. Binding Nature of Larger Bench Decisions in Ashok Iron and HMT Cases:
The Tribunal clarified that the issues in Ashok Iron and HMT cases were not identical to the issue at hand. In Ashok Iron, the issue was whether the credit availed and utilized under the modvat scheme during the period when the final products were dutiable was required to be reversed when subsequently the final product was exempted from duty liability. In HMT, the issue was whether the input credit taken when the final product was dutiable, and lying in stock or in process or contained in the final product on the day the final product becomes exempted product needs to be reversed and or is recoverable. The Tribunal concluded that these decisions did not address the specific issue of credit on inputs in stock on the day the final product becomes exempt.

3. Necessity of Specific Provision in Exemption Notification:
The Tribunal rejected the contention that an exemption notification should specifically provide for non-availability of cenvat credit facility. It held that the availability of cenvat credit depends upon the provisions of law comprised under the Cenvat Credit Rules and they do not stand modified by any exemption notification. The Tribunal cited the Supreme Court's decision in Amrit Papers, which overruled the decision in Orissa Extrusions and held that the correct proposition of law was that no credit of duty paid on inputs shall be allowed if the final product is exempt from the whole of the duty of excise leviable thereon or is chargeable to nil rate of duty.

4. Goods Cleared for Export Under Bond:
The Tribunal remanded the matter to the adjudicating authority to decide whether the goods cleared for export under bond can be considered as exempted goods and whether the appellants are entitled for the rebate under Rule 18 of the Central Excise Rules, 2002. The Tribunal noted that Rule 6(6) of the Cenvat Credit Rules, 2004 excludes the goods cleared for export under bond from the applicability of the provisions of law comprised under Rule 6(1) of the said Rules. The adjudicating authority was directed to consider this point with reference to those inputs which are stated to have been used in or in relation to the manufacture of the final goods which were cleared for export under the bond.

5. Correctness of Duty Quantification:
The Tribunal noted that the appellants had contended that the quantum of duty confirmed under the impugned order was incorrect. However, no documentary proof was placed before the Tribunal to substantiate this claim. The Tribunal directed the adjudicating authority to verify the records and ascertain whether the appellants had availed credit during the period from 1st January to 10th January 2005. The Tribunal emphasized that if there is mere wrong calculation of duty, the appellants should raise that point before the adjudicating authority by placing proper material for correction.

Conclusion:
The appeal was partly allowed on the limited grounds mentioned above. The Tribunal set aside the findings relating to the issue of applicability of Rule 6(6)(v) of the Cenvat Credit Rules, 2004 and the quantum of duty, remanding these issues to the adjudicating authority for reconsideration. The adjudicating authority was directed to dispose of these issues within four months from the receipt of the order of the Tribunal.

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