The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Ahmedabad has held that once the input credit is legally taken and utilized on the dutiable final product, it need not be reversed on the final product.
BACKGROUND
The appellant is engaged in the manufacture of Cotton Terry Towels falling under Chapter heading No. 63 of the Central Excise Tariff Act, 1985. The appellant are availing the facility of Cenvat credit under the Cenvat Credit Rules, 2004. The appellant’s raw material was attracting Additional Duty of Excise (Textile & Textile Articles) in terms of Section 3 of Additional Duties of Excise (Textile & Textile Articles) Act, 1978.
They have been availing Cenvat credit on the ADE (T&TA). Subsequently, vide Notification No. 31/2004-CE dated 09.07.2004, the ADE (T&TA) such raw materials was exempted whole of the additional duty of excise (T&TA) leviable thereon. However, the Cenvat credit availed before that was lying accumulated/ unutilized which had been carried forward from time to time.
The case of the department is that the appellant is liable to reverse the Cenvat credit lying unutilized in respect of ADE(T&TA) in terms of transitional provision of Rule 11(3)(ii) of the Cenvat Credit Rules, 2004.
The show cause notice dated 26.11.2012 was issued proposing recovery of the accumulated Cenvat credit of ADE (T&TA). The show cause notice was adjudicated by the Commissioner, Daman.
The appellant submits that Cenvat credit of ADE(T&TA) was legally availed as per the Rule prevailing at the time of receipt of the raw material and thereafter the same has been carried forward. The department demanded the unutilized Cenvat credit of ADE(T&TA) only on the ground that as per Rule 11((3) of Cenvat Credit Rules, 2004 the assessee is required to reverse the credit. At the time of taking credit and even thereafter when the credit was carried forward there was no provision for recovery or reversal of Cenvat credit. Rule 11(3) was inserted in Cenvat Credit Rules, 2004 only with effect from 01.03.2007. Therefore, the exemption notification issued prior to this date and Cenvat credit earned much before this date of insertion of Rule 11(3), the provision of Rule 11(3) cannot be applied retrospectively.
RULING
The tribunal held that once the input credit is legally taken and utilized on the dutiable final product, it need not be reversed on the final product being exempted subsequently. Only if any products are purchased subsequent to the said exemption and if any tax is paid on such inputs, as the final product is exempted from payment of tax, the assessee would not be entitled to avail the Cenvat credit on such inputs. But the Cenvat credit availed on such inputs till the date of exemption, they vest in the assessee and the assessee cannot be divested of that credit as the law does not provide for the same.
“Therefore, the authorities taking advantage of the notification exempting the final product cannot claim reversal of Cenvat credit either in respect of final product which have come into existence on the date of the notification or on the inputs stored in the godown or the work in progress and finished products,” the CESTAT said.
Case Title: Welspun India Limited V/s Commissioner of CGST & Central Excise
Citation: Excise Appeal No. 12251 Of 2014-Db