2007 (10) TMI 200 - AT - Central Excise

Use of inputs in dutiable & exempted goods - credit had been reversed related to exempted goods with interest - hence the question of directing the assessee to pay 8% or 10% of the value of the exempted goods which runs to an exorbitant 340% is not justified and proper - plea of the appellants for availing the benefit as they have reversed the credit is required to be accepted in terms of the judgments cited by them - all these four appeals are allowed with consequential relief

Issues Involved:
1. Reversal of Cenvat credit and its impact on the requirement to pay 10% of the value of exempted goods.
2. Application of various judicial precedents, including Larger Bench and Supreme Court judgments.
3. Financial hardship and waiver of pre-deposit.
4. Whether the matter should be referred to a Larger Bench.

Detailed Analysis:

1. Reversal of Cenvat Credit and Payment of 10% of Exempted Goods Value:
The primary issue in these appeals is whether the appellants, who have reversed the Cenvat credit along with interest before the issuance of the show cause notice, are still required to pay 10% of the value of the exempted goods. The appellants relied on the precedent set by the Apex Court in Chandrapur Magnet Wires (P) Ltd. v. CCE, Nagpur, which held that once the credit is reversed, the requirement to pay 10% of the value of the exempted goods does not arise. This principle was reiterated in several judgments, including K.G. Denim Ltd. v. CCE, Salem and Tube Investments of India Ltd. v. CCE, Madurai.

2. Application of Judicial Precedents:
The judgment extensively discusses the application of various judicial precedents. The appellants cited the Larger Bench judgment in Texmo Industries v. CCE, Coimbatore, which supported their stance. The Tribunal also referred to the 5-Member Larger Bench judgment in Franco Italian Co. v. CCE, which held that once the credit is reversed, the benefit of the exemption notification is applicable. The Tribunal noted that the judgment in Rallies India Ltd. v. CCE, Salem did not specifically address the issue of reversed credit, thereby distinguishing it from the present case.

3. Financial Hardship and Waiver of Pre-Deposit:
The Tribunal granted full waiver of pre-deposit and stay of recovery till the disposal of the appeal, citing financial hardship and the strong prima facie case in favor of the appellants. This was in line with the precedent set in the stay order for Ruchi Infrastructure Ltd. and other similar cases.

4. Referral to a Larger Bench:
The learned JCDR suggested referring the matter to a Larger Bench, arguing that the judgment in Rallies India Ltd. should apply. However, the Tribunal found no merit in this suggestion, noting that the issue of reversed credit was not addressed in Rallies India Ltd. and that the matter had already been settled by the Supreme Court and other Larger Bench judgments. The Tribunal emphasized that the reversal of credit before the issuance of the show cause notice, along with the payment of interest, negates the need to pay 10% of the value of the exempted goods.

Conclusion:
The Tribunal concluded that the appellants, having reversed the Cenvat credit along with interest, are not required to pay 10% of the value of the exempted goods. The appeals were allowed with consequential relief, following the principles laid down in the judgments of the Supreme Court and various Larger Benches. The Tribunal found no justification for referring the matter to another Larger Bench, as the issue was already well-settled.

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