2015 (12) TMI 1446 - HC - Central Excise

Rectifion of order of larger bench 2013 (4) TMI 532 - GUJARAT HIGH COURT - Reversal of CENVAT Credit where duty has been remitted on destroyed goods - Whether in view of the provisions contained in Rule 3 of the Cenvat Credit Rules, 2004 and Rule 21 of the Central Excise Rules, 2002, the decisions of this Court in case of COMMISSIONER OF CENTRAL EXCISE AND CUSTOMS, AHMEDABAD-I v. GDN GARMENTS, reported in 2010 (7) TMI 431 - GUJARAT HIGH COURT and COMMISSIONER OF CENTRAL EXCISE AND CUSTOMS V. BIOPAC INDIA CORPORATION LTD., reported in 2010 (7) TMI 433 - GUJARAT HIGH COURT lay down correct law in holding that even after remission of duty upon destruction of final product, the manufacturer is not required to reverse the Cenvat Credit on the inputs used in manufacturing such final product. Held that - Full Bench has held that prior to introduction of sub-rule (5C) of rule 3 of the Cenvat Credit Rules, there was no provision, which provided for reversal of the credit by the excise authorities where it has been lawfully taken by a manufacturer and that by way of the amendment, a new right was created in favour of the revenue, it is evident that there is clear contradiction in the second part of the operative portion of the judgement, to the extent it is held that there is no scope of reversal unless any condition has been imposed for remission of duty in terms of Rule 21 of the Central Excise Rules, 2002 making it clear that the credit already taken is to be reversed. In the opinion of this court, when the Full Bench has clearly held that prior to September 7, 2007, there was no statutory provision permitting the revenue authorities to direct reversal of credit already taken, the question of imposing any condition for reversal while granting remission of duty in terms of rule 21 of the Central Excise Rules would certainly not arise. Thus, it appears that the aforesaid part has crept in on account of inadvertent error and the same being in direct conflict with the main part of the judgment, requires to be deleted in the interest of justice. Powers of review can be exercised in rectifying an error in the earlier judgment. In the light of the above discussion, the applicant has clearly made out a case warranting exercise of review jurisdiction by this court. - The judgement and order dated 29.08.2012 passed by the Full Bench in Tax Appeals No.2520 of 2010, 896 of 2011 and 1586 of 2010, is hereby modified by deleting the following sentence from paragraph 20 of the said judgement Unless any condition has been imposed for remission of duty in terms of Rule 21 of the Central Excise Rules, 2002 making it clear that the credit already taken is to be reversed Decided in favor of Assessee.

Issues Involved:
1. Applicability of Rule 3 of the Cenvat Credit Rules, 2004 and Rule 21 of the Central Excise Rules, 2002 regarding reversal of Cenvat Credit.
2. Validity of the Full Bench's decision on the requirement of reversing Cenvat Credit upon remission of duty.
3. Review and modification of the Full Bench's judgment dated 29.08.2012.

Issue-wise Detailed Analysis:

1. Applicability of Rule 3 of the Cenvat Credit Rules, 2004 and Rule 21 of the Central Excise Rules, 2002 regarding reversal of Cenvat Credit:
The central question referred to the Larger Bench was whether, according to Rule 3 of the Cenvat Credit Rules, 2004 and Rule 21 of the Central Excise Rules, 2002, the decisions in the cases of Commissioner of Central Excise and Customs, Ahmedabad-I v. GDN Garments and Commissioner of Central Excise and Customs v. Biopac India Corporation Ltd. correctly held that manufacturers are not required to reverse the Cenvat Credit on inputs used in manufacturing final products, even after remission of duty upon destruction of the final product. The Larger Bench concluded that sub-rule (5C) of Rule 3 of the Cenvat Credit Rules, effective from September 7, 2007, introduced a provision for reversal of credit if the finished product becomes unfit for human consumption, unless a condition for remission of duty under Rule 21 of the Central Excise Rules, 2002, explicitly states that the credit already taken is to be reversed.

2. Validity of the Full Bench's decision on the requirement of reversing Cenvat Credit upon remission of duty:
The applicant sought modification of the Full Bench's judgment, arguing that prior to the introduction of sub-rule (5C) of Rule 3 of the Cenvat Credit Rules, there was no provision for the reversal of credit by the excise authorities. The Full Bench had acknowledged this, stating that the credit accrued at the moment the raw material or input was used in manufacturing a final product that was neither exempt from duty nor carried a nil rate of duty. Consequently, the amendment creating a new right in favor of the revenue was deemed prospective. The applicant contended that the operative part of the judgment, which allowed for the possibility of reversal if a condition was imposed under Rule 21, conflicted with the main judgment's finding that no such provision existed before September 7, 2007.

3. Review and modification of the Full Bench's judgment dated 29.08.2012:
The applicant argued that the Full Bench's judgment contained an error apparent on the face of the record, as it conflicted with its own findings. The court noted that the Full Bench had clearly held that prior to September 7, 2007, there was no statutory provision permitting the revenue authorities to direct reversal of credit already taken. Therefore, the question of imposing any condition for reversal while granting remission of duty under Rule 21 would not arise. The court agreed that the conflicting part of the judgment appeared to be an inadvertent error and needed to be rectified. The court cited precedents from the Supreme Court, emphasizing that review jurisdiction could be exercised to correct errors apparent on the record or errors of law.

Conclusion:
The court allowed the application for review, modifying the Full Bench's judgment by deleting the sentence "unless any condition has been imposed for remission of duty in terms of Rule 21 of the Central Excise Rules, 2002 making it clear that the credit already taken is to be reversed" from paragraph 20 of the judgment. The rule was made absolute, with no order as to costs.

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