2017 (10) TMI 956 - AT - Central Excise

Demand of duty with interest and penalty - it was alleged that as the assessee has failed to reverse the Cenvat Credit on inputs contained in semi finished goods i.e. the work in progress or inputs lying in stock, therefore, contravening the provisions of Rule 11(2) and 11(3) of the Cenvat Credit Rules 2004 - Held that - the fact is on record that the said Cenvat Credit was never used or utilized by the assessee for subsequent clearances - unutilized Cenvat credit lying in their Cenvat Credit account shall lapse in terms of Rule 11(2), 11(3) of Cenvat Credit Rules 2004. As the Cenvat Credit has not been utilized by the assessee therefore, no demand can be made against the assessee. No demand is sustainable against the assessee, therefore the penalty does not arise. Appeal allowed - decided in favor of assessee.

Issues:
1. Failure to reverse Cenvat Credit on inputs and input services as per Rule 11(2) and 11(3) of Cenvat Credit Rules 2004.
2. Discrepancy in availing Cenvat Credit on inputs and subsequent utilization by the assessee.
3. Interpretation of the provisions regarding reversal of Cenvat Credit and lapsing of unutilized credit.

Analysis:

Issue 1: Failure to reverse Cenvat Credit on inputs and input services as per Rule 11(2) and 11(3) of Cenvat Credit Rules 2004
The case involved the allegation that the assessee failed to reverse the Cenvat Credit on inputs contained in semi-finished goods or lying in stock, contravening Rule 11(2) and 11(3) of the Cenvat Credit Rules 2004. The adjudicating authority held that the only mistake by the assessee was the failure to make a reversal entry in the Cenvat Credit. However, the Ld. Commissioner (A) held that the appellant was required to reverse the amount and recover it from the assessee along with interest. The appellate tribunal examined the issue and determined that the unutilized Cenvat credit lying in the Cenvat Credit account shall lapse as per the rules, and since the credit was not utilized by the assessee, no demand could be made against them.

Issue 2: Discrepancy in availing Cenvat Credit on inputs and subsequent utilization by the assessee
The adjudicating authority obtained a verification report to ascertain whether the unutilized Cenvat Credit at the time of opting for exemption was availed by the assessee in the subsequent period. The report confirmed that the Cenvat Credit was not utilized by the assessee, although no debit entry was made in the relevant accounts. The tribunal noted that the failure to utilize the credit, even without a reverse entry, amounted to non-reversal of the Cenvat Credit. The Ld. Commissioner (A) erred in holding the amount recoverable from the assessee, as the unutilized credit was never used for subsequent clearances.

Issue 3: Interpretation of the provisions regarding reversal of Cenvat Credit and lapsing of unutilized credit
The tribunal emphasized that the unutilized Cenvat Credit lying in the account of the assessee shall lapse as per Rule 11(2) and 11(3) of the Cenvat Credit Rules 2004. Since the credit was not utilized by the assessee, the tribunal set aside the demand for duty along with interest. Consequently, the question of imposing a penalty on the assessee did not arise, as no demand was sustainable against them. The appeal filed by the assessee was allowed, while the appeal filed by the Revenue was dismissed.

In conclusion, the judgment clarified the application of Rule 11(2) and 11(3) of the Cenvat Credit Rules 2004 in cases of failure to reverse Cenvat Credit on inputs and input services, emphasizing the lapse of unutilized credit and the non-sustainability of demands in such instances.

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