2016 (3) TMI 897 - AT - Central Excise

Refund claim - reversal of cenvat credit - amount paid by the appellants under misunderstanding of the law - Demand Cenvat credit as final products were exempted - Held that - There is no provision in the modvat rules which provides for a reversal of the credit by the Excise authorities where it has been illegally and irregularly taken, in which event it stands cancelled or if utilised, has to be paid for. Once the input credit is legally taken and utilized on the dutiable final product, it need not be reversed on the final product being exempted subsequently. Only if any products are purchased subsequent to the said exemption and if any tax is paid on such inputs, as the final product is exempted from payment of tax, the assessee would not be entitled to avail the Cenvat credit on such inputs. But the Cenvat credit availed on such inputs till the date of exemption, they vest in the assessee and the assessee cannot be divested of that credit as the law does not provide for the same. Therefore the authorities taking advantage of the notification exempting the final product cannot claim reversal of Cenvat credit either in respect of final product which have come into existence on the date of the notification or on the inputs stored in the godown or the work in progress and finished products. See Tafe Ltd. (Tractor Division) 2011 (3) TMI 67 - KARNATAKA HIGH COURT upheld by SC 2011 (9) TMI 952 - SUPREME COURT - Decided in favour of assessee

Summary

Issues Involved:
Refund of erroneously paid Cenvat credit under misunderstanding of the law.

Analysis:
The appeal was against the rejection of a refund claim related to Cenvat credit on inputs used for manufacturing final products exempted from duty under Notification No. 30/2004-CE. The appellant paid the demanded Cenvat credit amount but later sought a refund, which was denied by lower authorities citing the case of Albert David Ltd. The appellant argued that the issue was settled by the Hon'ble High Court of Karnataka in various cases, emphasizing that the notification did not provide for credit reversal on inputs. The learned A.R. contended that the notification was conditional and cited the Albert David Ltd. case upheld by the apex court. The appellant sought a refund of erroneously paid amount, not a reversal of credit, and argued that the notification was not conditional.

The Tribunal considered the issue of refunding the amount paid under a misunderstanding of the law. The Notification No. 30/2004-CE only barred availing the benefit if Cenvat credit was taken. The High Court of Karnataka's judgment in TAFE Ltd. case was referenced, stating that once input credit is legally taken and utilized, it need not be reversed if the final product is exempted later. The Tribunal followed this judgment, upholding that the appellant should be refunded the erroneously paid amount. The Tribunal emphasized that the latter case's ratio must be followed, leading to setting aside the impugned order and allowing the appeal with consequential relief.

In conclusion, the Tribunal ruled in favor of the appellant, allowing the appeal for refund of the erroneously paid Cenvat credit amount under a misunderstanding of the law, following the precedent set by the High Court of Karnataka in the TAFE Ltd. case.