Credit not to be reversed on final product becoming exempt subsequently

AIT News Network

NEW DELHI. Larger Bench of CESTAT vide AIT-2008-388-CESTAT has ruled that the input credit taken, when the final product was dutiable, need not be reversed on the final product becoming exempt from payment of duty.

“The Hon’ble Rajasthan High Court in the case of Hindustan Zinc Ltd. Vs. Union of India, while  dealing with Rule 57 C and Rule 57 CC of Rules 1944 relying on the decision of Supreme Court in the case of Dai Ichi Karkaria Ltd. (supra) and Kerala High Court decision in the case of Premier Tyres Ltd. (supra) held that if on the date of entitlement, there is no illegality or invalidity in taking credit of such Modvat/Cenvat credit, right to utilisation such credit against further liability towards duty become indefeasible and is not liable to be recovered in such contingency. The relevant portion of the said decision is reproduced below:-

“39.         Upshot of this discussion in that prohibition against claiming Modvat credit on exempted goods or subject to nil rate of duty applies in case where such exemption from payment of Duty or nil rate of Duty on end product is predictably known at the time the recipient of inputs is entitled to take credit of duties paid on such inputs. The fact that due to subsequent notification or on contingency that may arise in future, the end product is cleared without payment of duty due to exemption or nil rate of duty does not affect the availing of Modvat credit on the date of entitlement. If on the date of entitlement, there is no illegality or invalidity  in taking credit of such Modvat/Cenvat credit, the right to utilise such credit against future liability towards duty become indefeasible and it is not liable to be reversed in the contingency discussed above.”

20.          On perusal of the Rule 6 of Rules 2002 and the corresponding Rules, as mentioned above, we are of the view that the Appellants had correctly taken the credit and utilised, when the final product was dutiable and there is no requirement to reverse the credit on final product becoming exempt and such credit cannot be recovered under Rule 12 of Rules 2002 corresponding to Rule 57I, 57AH of Rules 1944.

21.          We find that the different benches of the Tribunal have taken the similar view in the cases of C.N.C. Commercial Ltd. (supra) upheld by the High Court, Saboo Alloys Pvt. Ltd. (supra), Swastik Textile Engineers Ltd. (supra) and E.S.L. Ltd. (supra). We agree with the views expressed in the said decisions.

22.          In view of the above discussions, we hold that when the input-credit legally taken and utilised on the dutiable final products, need not be reversed on the final product becoming exempt subsequently w.e.f. 9.7.2004. The decision of the Bangalore Bench in the case of TAFE Ltd. (Tractor Division) Vs. CCE, Bangalore ‘2007 (79) RLT (Tribunal-Bangalore) enunciated the correct position of the law. The issue is thus, answered in favour of the assessee and against the Revenue.

23.          Before we part, we observe that this order is passed without going into the submission of the ld. Advocate that the Notification No.10/2007-CE(NT) dated 1.3.2007 inserted sub-rule (3) to Rule 11 of Rules 2004, is a specific provision for reversal of credit because such issue was not in the referral order. “

(Click here for full text of Ruling-AIT-2008-388-CESTAT)

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