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2008 (10) TMI 54 - AT - Central ExciseCredit taken and utilized correctly when final product was dutiable whether credit is required to be reversed when the said final product subsequently becomes exempt whether such credit can be recovered by revenue - hold that when the input-credit legally taken and utilised on the dutiable final products, need not be reversed on the final product becoming exempt subsequently unless specific provision exist therefor
Issues Involved:
1. Whether the input credit taken when the final product was dutiable needs to be reversed when the final product becomes exempt from payment of duty. 2. Conflicting decisions by CESTAT Bangalore and Chennai Benches on the reversal of input credit. Detailed Analysis: Issue 1: Whether the input credit taken when the final product was dutiable needs to be reversed when the final product becomes exempt from payment of duty. The main contention of the Revenue is based on Rule 6(1) of the Cenvat Credit Rules, 2002, which states that Cenvat credit shall not be allowed on inputs used in the manufacture of exempted final products. The Revenue argued that the appellants violated this rule when their final products became exempt from duty on 9-7-2004, and thus, the credit on inputs lying in stock or contained in finished products should be reversed and recovered under Rule 12 of the Cenvat Credit Rules, 2002, read with Section 11A of the Central Excise Act, 1944. The Tribunal referred to the precedent set by the Five Members Bench in the case of Commissioner of Central Excise, Rajkot v. Ashok Iron and Steel Fabricators, which followed the Kerala High Court's decision in Premier Tyres Ltd., holding that credit legally taken when the final product was dutiable need not be reversed when the final product becomes exempt. This decision was upheld by the Supreme Court. The Tribunal also considered the decision in Albert David Ltd., which held that there was a specific provision in Rule 57AB of the Central Excise Rules, 1944, for the recovery of credit used wrongly. However, it was noted that the Supreme Court's dismissal of the appeal in Albert David Ltd. was without a speaking order, and thus, it did not constitute a declaration of law under Article 141 of the Constitution of India. The Tribunal reviewed various decisions, including the Bangalore Bench's decision in TAFE Ltd., which followed the Supreme Court's ruling in Dai Ichi Karkaria Ltd. and the Larger Bench decision in Ashok Iron & Steel Fabricators, holding that input credit legally taken when the final product was dutiable need not be reversed upon the final product becoming exempt. Issue 2: Conflicting decisions by CESTAT Bangalore and Chennai Benches on the reversal of input credit. The Bangalore Bench in TAFE Ltd. held that input credit legally taken need not be reversed when the final product becomes exempt. Conversely, the Chennai Bench in Tractors & Farm Equipments Ltd. followed the decision in Albert David Ltd., holding that input credit taken in respect of inputs in stock or in process or contained in the final product on 9-7-2004 must be reversed and recovered if adequate credit is not in balance. The Tribunal analyzed the changes in Modvat/Cenvat Credit Rules over time, noting that Rule 6 of the Cenvat Credit Rules, 2002, corresponds to Rule 57C and 57CC of the Central Excise Rules, 1944, and Rule 12 of the Cenvat Credit Rules, 2002, corresponds to Rule 57-I and 57AH of the Central Excise Rules, 1944. The Tribunal concluded that Rule 57-I and its equivalents apply only when the credit has been taken or utilized wrongly, which was not the case here as the credit was legally taken and utilized when the final product was dutiable. The Tribunal cited the Rajasthan High Court's decision in Hindustan Zinc Ltd., which held that if there is no illegality in taking credit at the time of entitlement, the right to utilize such credit becomes indefeasible and is not liable to be reversed due to subsequent exemption of the final product. Conclusion: The Tribunal held that input credit legally taken and utilized on dutiable final products need not be reversed when the final product becomes exempt. The decision of the Bangalore Bench in TAFE Ltd. enunciated the correct position of the law. The issue was thus answered in favor of the assessee and against the Revenue. The Tribunal also noted that this order was passed without addressing the submission regarding Notification No. 10/2007-C.E. (NT.), dated 1-3-2007, which inserted sub-rule (3) to Rule 11 of the Cenvat Credit Rules, 2004, as this issue was not part of the referral order. Final Disposition: The records were placed before the Regular Bench for the final disposal of the appeals.
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