2018 (4) TMI 1029 - HC - Central Excise

Reversal of CENVAT credit - Rule 11(2) of Cenvat Credit Rules 2004 - Assessee availed SSI exemption under N/N. 8/2003-C.E. dated 01.03.2003 - case of Revenue is that though the assessee had availed the SSI exemption it had failed to pay the amount of duty under Rule 11(2) of CCR 2004 equivalent to Cenvat credit availed by them on inputs and finished goods lying in stock as on 31.03.2005 and 31.03.2006 - whether the demand of duty equivalent to the Cenvat credit availed by the assessee on the finished goods and inputs lying on stock as on 31.03.2006 was correct as they have admittedly availed the SSI exemption Notification No.8 of 2003 dated 01.03.2003? Held that - it is an admitted fact that from the inception the assessee had been availing the SSI Unit exemption. The said exemption under N/N. 8 of 2003, -C.E. dated 01.03.2003 had been given based on the quantum and once the Unit exceeds the quantum it will automatically lose the exemption facility and again if it comes back within the quantum it can start seeking exemption - admittedly in February and March 2006 the assessee was not in the zone of SSI exemption and therefore it started to pay the excise duty. For the SSI Unit claiming exemption if at all any Cenvat credit claimed the same is reversable during the exemption period. The fact remains that as per the stock available based on the Stock Register and other documents which were verified by the revenue that on closing of stock of 400.85 MTS contains 72.46MTS of import scraps on which Cenvat credit was availed and therefore from 01.04.2006 since the assessee has become once again eligible to get exemption under SSI exemption notification naturally the assessee has to be subjected to Cenvat credit reversal as the stock lying as on 31.03.2006 unutilized certainly would go for manufacturing or utilisation beyond the date. The Cenvat credit availed by the assessee even during the period from February to March 2006 insofar as the lying stock as on 31.03.2006 is concerned shall be certainly reversable - the demand made by the revenue for duty to be payable is wholly justifiable in consonance with the relevant provisions of the Cenvat Credit Rule as well as the Central Excise Act. Appeal dismissed - decided against assessee.

Issues Involved:
1. Applicability of Rule 11(2) of Cenvat Credit Rules, 2004.
2. Correctness of Tribunal's decision on credit of duty paid on inputs utilized in the manufacture of exempted goods.
3. Allowance of duty credit on imported inputs/inputs contained in finished goods during the dutiable period.
4. Limitation period for issuing a show cause notice.

Issue-wise Detailed Analysis:

1. Applicability of Rule 11(2) of Cenvat Credit Rules, 2004:
The Court examined whether Rule 11(2) mandates the manufacturer to pay an amount equivalent to the Cenvat Credit allowed on inputs lying in stock or in process or contained in the final product lying in stock. The assessee had availed SSI exemption under Notification No. 8/2003-C.E. but failed to reverse the Cenvat credit on inputs and finished goods lying in stock as on 31.03.2005 and 31.03.2006. The Court noted that the assessee had crossed the exemption limit in February and March 2006 and started paying excise duty. However, the inputs/raw materials purchased and received under invoices dated 03.02.2006 to 08.02.2006 were availed as Cenvat credit before 31.03.2006.

2. Correctness of Tribunal's Decision on Credit of Duty Paid on Inputs Utilized in the Manufacture of Exempted Goods:
The Tribunal held that the credit of duty paid on inputs utilized in the manufacture of exempted goods is recoverable, as the credit was correctly taken when the inputs were brought into the factory. The Court supported this view by referring to the decision in Albert David Limited, where it was held that credit taken on inputs used in the manufacture of goods, which were subsequently exempted, is recoverable. The Court emphasized that Cenvat credit is available only if the final product suffers excise duty.

3. Allowance of Duty Credit on Imported Inputs/Inputs Contained in Finished Goods During the Dutiable Period:
The Court analyzed whether duty credit on imported inputs/inputs contained in finished goods lying in stock during the dutiable period can be given under Rule 11(2). The Court noted that the stock as on 31.03.2006 included imported scrap on which Cenvat credit was availed. Since the assessee reverted to the SSI exemption from 01.04.2006, the Cenvat credit availed on the stock lying as on 31.03.2006 was subject to reversal. The Court upheld the demand made by the revenue for duty payable as calculated in the show cause notice.

4. Limitation Period for Issuing a Show Cause Notice:
The Court addressed whether the limitation for issuing a show cause notice should be reckoned from the date of utilization of credit or the financial year. The Commissioner (Appeals) had set aside the demand for the period 2004-2005 on the ground of limitation, as the show cause notice was issued on 28.03.2007, beyond the normal period. However, the demand for the period 2005-2006 was upheld on merits. The Court concluded that the demand for the year 2005-2006 was within the permissible time limit.

Conclusion:
The Court dismissed the appeal, upholding the Tribunal's decision that the Cenvat credit availed by the assessee on inputs and finished goods lying in stock as on 31.03.2006 was subject to reversal. The substantial questions of law were answered in favor of the revenue and against the assessee. The Civil Miscellaneous Appeal was dismissed with no order as to costs.

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