2010 (4) TMI 419 - AT - Central Excise

Cenvat Credit- The respondents had Cenvat credit of Rs. 4, 38, 483/- in the Cenvat credit account as on 11-7-2006 the day on which they started availing full exemption on the final products manufactured by them under Notification No. 30/2004-C.E. dated 9-7-2004. The Assistant Commissioner appropriated this amount with interest of Rs. 27, 330/- while sanctioning rebate of Rs. 5, 60, 363/- to the respondents on the ground that respondents are ineligible to take the Cenvat Credit after opting full exemption under Notification No. 30/2004-C.E. dated 9-7-2004. On an appeal filed by the respondents Commissioner (Appeals) held that the adjustment ordered by the original Adjudicating Authority was wrong and he also held that credit on the inputs lying in stock at the time of opting for exemption need not be reversed. Held that- original Adjudicating Authority had adjusted the amount lying in the Cenvat credit account while sanctioning the refund without any issue of show cause notice. The provisions of Section 11 of Central Excise Act 1944 empower the officers to adjust the amounts which are due to the Department. Therefore it was necessary for the original Adjudicating Authority to hold that the Cenvat credit lying in the books of account was recoverable and only after an order upholding the recovery the question of adjustment could arise. In view of the above discussions there is no merit in the appeal filed by the Revenue and accordingly reject the same.

Issues:
1. Appropriation of Cenvat credit upon availing full exemption under Notification No. 30/2004-C.E.
2. Reversal of Cenvat credit upon final products becoming exempt.
3. Recovery vs. reversal of Cenvat credit.
4. Authority to adjust amounts due to the Department under Section 11 of Central Excise Act, 1944.

Analysis:

1. The respondents had Cenvat credit of Rs. 4,38,483/- when they started availing full exemption on final products under Notification No. 30/2004-C.E. The Assistant Commissioner appropriated this amount with interest while sanctioning rebate. The Commissioner (Appeals) held that the adjustment was incorrect and that credit on inputs need not be reversed, citing a Tribunal decision. The Revenue appealed against this decision.

2. The learned SDR argued that based on Tribunal decisions in other cases, the appellants were required to reverse the credit upon final products becoming exempt. The SDR contended that the original Adjudicating Authority's adjustment was legal. The SDR also highlighted that the decision relied upon by the Commissioner (Appeals) was not appropriate as it did not consider a relevant Division Bench decision.

3. The Tribunal noted that when products become fully exempt, credit can be reversed, but there is a distinction between reversal and recovery of credit. The Tribunal emphasized that recovery of credit would mean the cash equivalent would no longer be available to the assessee. The Tribunal clarified that excise authorities cannot recover credit unless it was illegally or irregularly taken. The Tribunal also pointed out that the original Adjudicating Authority adjusted the credit without issuing a show cause notice, emphasizing the need for a proper order upholding recovery before adjustment.

4. The Tribunal concluded that the Revenue's appeal had no merit. It was noted that under Section 11 of the Central Excise Act, 1944, officers are empowered to adjust amounts due to the Department. The Tribunal rejected the Revenue's appeal based on the discussions and findings presented.

This judgment clarifies the nuances between reversal and recovery of Cenvat credit upon availing full exemption, emphasizing the need for proper procedures and legal authority for credit adjustments.

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