2017 (2) TMI 250 - AT - Central Excise

Reversal of credit - dutiable goods became exempted from Central Excise duty w.e.f. 04/02/2004 - Rule 6 (1) read with Rule 3 of CCR, 2002 - Held that - the same issue has been decided by the Tribunal in the case of Albert David Ltd. 2002 (11) TMI 144 - CEGAT, COURT NO. III, NEW DELHI , where it was held that a harmonious reading of Rules dealing with Cenvat Scheme and particularly Rule 57AC and Rule 57AD of the Central Excise Rules, 1944 makes it very evident that Cenvat credit shall not be allowed on such quantity of inputs which is used in the manufacture of exempted goods - demand of reversal of Cenvat Credit upheld - penalty set aside - appeal disposed off - decided partly in favor of assessee.

Summary

Issues:
1. Applicability of Rule 6 of Cenvat Credit Rules, 2002 when finished goods become exempted from Central Excise duty.
2. Interpretation of Rule 9(2) of Cenvat Credit Rules, 2002 in relation to credit on inputs when dutiable goods become exempted.
3. Validity of demand for reversal of credit on inputs under Rule 6(1) read with Rule 3 of Cenvat Credit Rules, 2002.
4. Imposition of penalties by lower authorities in relation to the demand for reversal of credit on inputs.

Analysis:
1. The case involved M/s. Encoboard Industries Ltd., engaged in manufacturing dutiable goods exempted from Central Excise duty. The issue was the demand for reversal of credit on inputs under Rule 6(1) read with Rule 3 of Cenvat Credit Rules, 2002, which was confirmed by lower authorities. The appellant argued that Rule 6 does not apply when finished goods become exempted, citing Rule 9(2) which allows credit when dutiable goods become exempted. They relied on legal precedents like Premier Tyres case and Ashok Iron & Steel case to support their argument.

2. The Assistant Commissioner (AR) for the respondent relied on the impugned order and referred to the decision in Albert David Ltd. case, upheld by the Hon'ble Apex Court. The Tribunal, after considering submissions, observed that Cenvat credit is meant to remove cascading effects of Central Excise duty and is available only if the final product incurs excise duty. If no duty is payable on the final product, availing Cenvat credit is not possible. Rule 57AD prohibits allowing credit on inputs used in manufacturing exempted goods, and Rule 57AH provides for recovery of wrongly utilized credit. The Tribunal upheld the demand for reversal of credit on inputs used in manufacturing exempted goods but waived the penalty.

3. The Hon'ble Apex Court dismissed the appeal against the Tribunal's decision, upholding the demand for reversal of Cenvat Credit while setting aside the penalty. The judgment clarified the application of Cenvat credit rules in cases where dutiable goods become exempted, emphasizing the restriction on credit for inputs used in manufacturing exempted goods. The decision provided a detailed analysis of relevant rules and legal precedents to support the conclusion.