2016 (11) TMI 628 - AT - Central Excise

Reversal of CENVAT credit - area based exemption under N/N. 50/2003-CE dated 10.6.2003 - whether the inputs lying in stock on the date on which exemption Notification No. 50/2003-CE dated 10.6.2003 exempted final product, the appellant is required to reverse the credit lying in their stock or not? - Held that - reliance placed on the decision of the case HMT Versus COMMISSIONER OF CENTRAL EXCISE, PANCHKULA 2008 (10) TMI 54 - CESTAT, NEW DELHI where it was held 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 At the time opting area based exemption of Notification No.50/2003-CE dated 10.6.2003, the appellants are not required to reversed the credit in their cenvat credit account lying unutilized - appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Whether the appellants are required to reverse the credit lying in their cenvat credit account upon opting for area-based exemption under Notification No. 50/2003-CE dated 10.6.2003.

Analysis:
The appellants, engaged in manufacturing telecommunication equipment in Himachal Pradesh, initially took credit on inputs and cleared final products on payment of duty. Subsequently, they opted for exemption under Notification No. 50/2003-CE dated 10.6.2003 and cleared goods without duty payment. The Revenue contended that the credit in their cenvat account on the exemption date should be reversed. Show cause notices were issued, leading to an order requiring credit reversal. The appellants appealed, citing precedents from the Hon'ble High Court of Himachal Pradesh and Tribunal decisions in their favor.

The Tribunal deliberated on whether the appellants must reverse the credit on inputs upon opting for the exemption. Reference was made to a previous Tribunal case where it was held that credit need not be reversed when the final product becomes exempt. This decision was supported by various Tribunal benches and upheld by the High Court. The Tribunal also referenced a Supreme Court case regarding reversal of Modvat credit under Central Excise Rules, emphasizing the indefeasible nature of validly taken credit. The language of Rule 57H(5) of Excise Rules and Rule 9(2) of Cenvat Rules was deemed identical, leading to a similar decision requirement.

Moreover, the High Court of Himachal Pradesh reiterated in another case that the manufacturer need not reverse Modvat credit upon final product exemption. The Appellate Authority's dismissal of relevant decisions was criticized for failing to appreciate the legal precedents. Ultimately, the Tribunal ruled in favor of the appellants, stating that they were not required to reverse the credit upon opting for the area-based exemption. The impugned orders were set aside, and the appeals were allowed with any consequential relief.

In conclusion, the judgment clarified the non-reversal requirement of credit upon opting for an exemption under Notification No. 50/2003-CE dated 10.6.2003, aligning with previous legal interpretations and precedents. The decision emphasized the consistent application of rules across different cases and the importance of upholding validly taken credits in excise matters.