2016 (10) TMI 759 - AT - Central Excise

Modvat credit - whether the appellant is required to reverse the Modvat credit in respect of input lying in the stock on the date when the final product became exempted by the Notification No. 15/96 dated 22/7/1996 from whole of duty during the period? Held that - at the relevant time i.e 22/7/1996 when the final product namely Vanaspati was exempted, there was no provision for reversal of Cenvat credit on the stock of input lying as on date on which exempted notification was issued. The specific provision was introduced under Rule 11(3) of Cenvat Credit Rules, 2004 w.e.f. 1/3/2007 only. That specific provision was brought in the statute which clearly shows that for the previous period there was no requirement of reversal of credit on the input. When the credit was availed, final product was dutiable and subsequently got exempted. Reliance placed in the decision of Ashok Iron & Steel Fabricators Vs. CCE 2002 (1) TMI 91 - CEGAT, NEW DELHI where it was held that Modvat credit need not to be reversed on the stock of input lying in stock when the final product became exempted. As regard the specific provision brought under Rule 11(3) of Cenvat Credit Rules, 2004, the same was observed by the Hon ble Madras High Court in case of Tractor and Farm Equipment Ltd Vs. CCE 2016 (1) TMI 1006 - SUPREME COURT wherein it was held that The credit may be taken against the excise duty on a final product manufactured on the very day that it becomes available. Reversal of Modvat credit not justified appeal allowed decided in favor of appellant.

Summary

Issues Involved:
1. Whether the appellant is required to reverse the Modvat credit in respect of input lying in stock on the date when the final product became exempted by Notification No. 15/96 dated 22/7/1996.

Issue-Wise Detailed Analysis:

1. Requirement to Reverse Modvat Credit:
The central issue in this case revolves around whether the appellant must reverse the Modvat credit for inputs lying in stock when the final product became exempted from duty. The appellant argued that at the time of taking credit, Modvat credit availment was permissible and the final product was dutiable. Therefore, the credit availed should not be disputed. The appellant cited several judgments to support their stance, including Ashok Iron & Steel Fabricators Vs. CCE, which was upheld by the Supreme Court, and other cases such as HMT Vs. CCE and CCE Vs. CNC Commercial, which consistently held that Modvat credit need not be reversed when the final product becomes exempted.

The appellant further contended that the specific provision for reversal of Cenvat credit in respect of input lying in stock was introduced only by Rule 11(3) in the Cenvat Credit Rules, 2004, effective from 1/3/2007. Prior to this rule, there was no statutory provision for such reversal.

On the other hand, the Revenue argued that the Modvat scheme's objective was to avoid the cascading effect of tax on the final product. Therefore, if the final product is exempted, no Modvat credit should be allowed.

2. Tribunal's Findings and Observations:
The Tribunal noted that at the relevant time (22/7/1996), when the final product (Vanaspati) was exempted, there was no provision for reversing Cenvat credit on the stock of input lying as of the date the exemption notification was issued. The Tribunal observed that the specific provision was introduced under Rule 11(3) of the Cenvat Credit Rules, 2004, effective from 1/3/2007, indicating that there was no requirement for reversal of credit on the input for the previous period.

The Tribunal referenced the Larger Bench decision in Ashok Iron & Steel Fabricators, which was upheld by the Supreme Court, stating that the manufacturer obtains credit for the excise duty paid on raw materials immediately upon making the requisite declaration and obtaining acknowledgment. The credit is indefeasible and can be used at any time for payment of excise duty on the excisable product. There is no provision for reversing the credit unless it was illegally or irregularly taken.

3. Precedent Cases and Legal Interpretations:
The Tribunal considered various precedents, including the Supreme Court's decision in Dai Ichi Karkaria Ltd., which clarified that the credit taken on inputs is indefeasible and not subject to reversal unless taken illegally or irregularly. The Tribunal also referenced the High Court decisions in United Vanaspati and Premier Tyres Ltd., which supported the stance that validly taken credit need not be reversed even if the final product becomes exempt from duty.

The Tribunal emphasized that the introduction of Rule 11(3) of the Cenvat Credit Rules, 2004, and subsequent clarifications indicated that the position of law as decided in previous cases remained correct. The Tribunal concluded that the impugned order rejecting the appellant's appeal was incorrect and set it aside, allowing the appeal.

Conclusion:
The Tribunal ruled in favor of the appellant, holding that there was no requirement to reverse the Modvat credit on inputs lying in stock when the final product became exempted from duty prior to the introduction of Rule 11(3) of the Cenvat Credit Rules, 2004. The appeal was allowed, and the impugned order rejecting the appellant's appeal was set aside.