1996 (10) TMI 276 - AT - Central Excise

Summary

Issues:
1. Whether Modvat credit needs to be reversed if a notified finished product is subsequently exempted.

Analysis:
The appeal in question pertains to the issue of whether Modvat credit, taken for inputs used in manufacturing a notified finished product that later became exempt, should be reversed. The Collector (Appeals) relied on a previous Tribunal ruling in the case of Collector of Central Excise v. Premier Tyres Ltd. The Department's representative highlighted conflicting views between the South and East Regional Benches regarding Modvat credit. The South Regional Bench considered Modvat credit and its utilization as separate legal events, maintaining that correct initial credit and utilization should not be affected by subsequent product exemptions. Conversely, the East Regional Bench held that Modvat credit linked to exempted finished products could be recovered under Rule 57C. The matter was referred to the Larger Bench, which, in Kirloskar Oil Engines case, limited Modvat credit for inputs used in exempted goods at the time of input receipt. However, the fate of Modvat credit for inputs in finished products exempted post-input receipt was unclear.

The Tribunal, in the case of Collector of Central Excise v. Beama Manufacturers, clarified that if an exemption notification is issued after input receipt, the Larger Bench's decision does not apply for credit reversal. The absence of specific rules for inputs in finished products exempted post-receipt raises the question of applying Rule 57C or the Kirloskar Oil Engines judgment. The Department argued for the latter's application.

Regarding the Kirloskar Oil Engines judgment, it restricts Modvat credit for inputs used in exempted goods at input receipt, aligning with Rule 57C. Since there is no recovery provision for post-exemption finished products, correct Modvat credit utilization cannot be reversed. The 3-Member Bench opined that Kirloskar Oil Engines' ratio does not apply to the present scenario, suggesting recovery under Rule 57F for inputs in stock. Recovery for inputs in exempted finished products in stock post-exemption lacks a specific provision, warranting no recovery unless supported by law. Notably, Notification No. 175/86 restricts exemption for goods using modvatted inputs but lacks provisions for total exemption, preventing Modvat credit recovery. Following the precedent set in Collector of Central Excise v. Beama Manufacturers, the Tribunal dismissed the Revenue's appeal, ruling against the proposed recovery.

In conclusion, the Tribunal upheld that Modvat credit need not be reversed for inputs in finished products exempted post-receipt, unless specific recovery provisions exist. The decision aligned with past rulings and emphasized the absence of recovery mechanisms for such scenarios, ultimately dismissing the Revenue's appeal.