2018 (4) TMI 833 - AT - Central Excise

Recovery of credit utilized for payment of duty - closure of factory - Revenue was of the view that they have to pay back the said credit involved in that quantum of the raw material which was lying in their factory at the time of closure of the factory - Held that - Revenue has not adduce any evidence to show the clearance of the said raw materials and has moved on the presumption that with the vacation of the premises the raw material must have been removed - the impugned demand by requiring the appellant to debit the availed and utilized Cenvat credit set aside - appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Whether the appellant is liable to pay back the Cenvat credit on raw material lying in their factory at the time of closure.
2. Whether there is a legal obligation for the appellant to reverse the credit taken on the raw material.
3. Whether the appellant's claim of manufacturing loss justifies non-reversal of the credit.
4. Whether the Revenue provided sufficient evidence to support their claim of removal of raw material by the appellant.

Analysis:

1. The appellant, engaged in manufacturing pan masala, closed their factory in September 2012 and surrendered their registration certificate. The Revenue claimed that 420.050 kilograms of raw material with Cenvat credit of ?2,86,849 was present in the factory at closure, leading to a demand for repayment of the credit.

2. The appellant argued that the raw material was lost during manufacturing operations, such as wastage and spillage, justifying non-payment of the Cenvat credit. The Revenue contended that the raw material was physically present and the appellant was obligated to reverse the credit as it was utilized for duty payment.

3. The judge noted that there is no legal requirement to reverse the credit on raw material, especially when it has already been utilized for duty payment. The appellant's entitlement to use the credit immediately after availing it, without actual use of inputs, was highlighted. Lack of evidence supporting Revenue's claim of raw material removal upon factory vacation weakened their argument.

4. The absence of concrete evidence regarding the removal of raw material by the appellant, coupled with the appellant's assertion of manufacturing loss, led to the decision to set aside the demand for credit repayment. The judge ruled in favor of the appellant, allowing the appeal and providing consequential relief.

In conclusion, the judgment favored the appellant, emphasizing the lack of legal basis for demanding repayment of Cenvat credit on raw material at the time of factory closure. The decision highlighted the appellant's right to utilize the credit without a direct correlation between raw materials and final products, especially in the absence of substantial evidence supporting the Revenue's claims.