2016 (8) TMI 237 - AT - Central Excise

Reversal of cenvat credit appellant not reversed the cenvat credit attributable to the stock of raw material, and inputs contained in work in progress and in final products when the final product became fully exempt Held that - on the date when the final goods become exempt from payment of duty, for the inputs received on and after the said date, no credit can be taken decided in favor of assesse.

Summary

Issues:
Appeal against CENVAT Credit demand confirmation due to failure to reverse credit on exempt final product.

Analysis:
The appeal was filed challenging the order confirming a CENVAT Credit demand of Rs. 1,53,38,727 along with interest and penalties. The demand was based on the appellant's failure to reverse the CENVAT Credit related to raw materials, inputs in work-in-progress, and final products in stock when tractors became fully exempt from Central Excise duty on 9th July, 2004. The period in question predates 01/03/2007.

The appellant's counsel argued that the issue had been settled in favor of the assessee by various judgments, including the Madras High Court case of Tractor and Farm Equipment Ltd. Vs. CCE, Madurai-II, which was upheld by the Supreme Court. The Departmental Representative agreed with this contention.

The Tribunal examined the Madras High Court judgment in detail, particularly focusing on paragraphs 15, 16, and 17. The High Court emphasized that there is no requirement for a correlation between raw materials and the final product for taking credit. Once it was established that no correlation was needed, the appellant's plea was upheld. The Court clarified that on the day final goods become exempt from duty, no credit can be taken for inputs received after that date.

The Tribunal noted the introduction of Rule 11(3) of the CENVAT Credit Rules, 2004, through Notification No. 10/2007-C.E. (N.T.) dated 1-3-2007, which clarified that the credit position as decided in previous cases was correct. The Tribunal found that its earlier decision erred in not following the established legal position. Therefore, the impugned order was set aside, and the appeal was allowed based on the High Court judgment favoring the appellant.