2019 (3) TMI 1216 - AT - Central Excise

CENVAT Credit - transitional provisions - Revenue is of the view of that as the appellants have started manufacturing exempted goods therefore the Cenvat credit lying in their Cenvat credit account contained in inputs/ semi finished goods/ finished goods shall lapse in terms of Rule 11 - Rule 11(3) of the Cenvat Credit Rules 2004 - Held that - As the appellant s final product has become exempt from payment of duty absolutely therefore the appellants are not allowed to utilize the Cenvat credit lying in their Cenvat credit account. But there is no provision that how the same shall be recovered - Rule 14 of the Cenvat Credit Rules 2004 is applicable only in a case where the Cenvat credit has been taken and utilized wrongly. Admittedly the Cenvat credit has not been utilized by the appellants i.e. lying in Cenvat credit account. Moreover at the time of taking the Cenvat credit the appellants were entitled to take the Cenvat credit therefore they have not taken and utilized the Cenvat credit wrongly. Therefore the provisions of Rule 14 are not applicable to the facts of this case. Moreover there is no charging provision has incorporated for recovery of Cenvat credit till yet. A similar issue has been dealt by this Tribunal in the case of M/s Shiv Engineering Industries 2018 (11) TMI 418 - CESTAT CHANDIGARH wherein in terms of Rule 3(5) of the Cenvat Credit Rules 2004 if the inputs were cleared as such the assessee is required to reverse the Cenvat credit taken on such inputs in terms of Rule 3(5) of the Cenvat Credit Rules 2004. But in case if the Cenvat credit has not been reversed then how the same is recoverable. Admittedly in the case in hand the Cenvat credit sought to be recovered in terms of Rule 14 of the Cenvat Credit Rules 2004 the appellants were entitled to take the Cenvat credit at the time of availment of Cenvat credit therefore the same cannot be said that they have taken Cenvat credit wrongly. Further the Cenvat credit is lying in their Cenvat credit account; therefore the same has not been utilized by the appellants wrongly. In these terms Rule 14 of the Cenvat Credit Rules 2004 is not applicable to the facts of this case. Appeal allowed - decided in favor of appellant.

Summary

Issues:
Whether the appellants are required to reverse the Cenvat credit in their account due to manufacturing exempted goods.

Analysis:
The appellants appealed against an order to reverse Cenvat credit under Rule 11(3) of the Cenvat Credit Rules, 2004, as their goods became exempt from duty. The Revenue argued that the credit should lapse. The appellants contended that no provision existed for such reversal at the time of credit availment. They cited court cases supporting their view. The Revenue relied on a different case. The key issue was whether the appellants had to reverse the Cenvat credit due to manufacturing exempted goods.

The Tribunal analyzed Rule 11 of the Cenvat Credit Rules, 2004, which states that credit shall lapse if final goods are exempt. However, there was no provision on how to recover such credit. Rule 14 applies only if credit is utilized wrongly, which was not the case here. A previous Tribunal case was referenced where a similar issue was discussed, concluding that Rule 14 did not apply. As the credit was not utilized, the recovery mechanism did not apply.

Citing High Court cases, the Tribunal found no merit in the Revenue's argument. The High Court held that if duty was paid on inputs used in manufacturing, and valid Cenvat credit was availed, it should not be reversed due to subsequent exemption of final products. The Tribunal set aside the impugned order, as there was no recovery provision during the relevant period. The judgments cited supported the appellants' position, leading to the allowance of the appeal with consequential relief.