Reversal of Cenvat credit under Rule 6 of CCR, 2004

PJ/Case Laws/2010-11/1068

Case: Commissioner of Central Excise v/s Maan Pharmaceuticals Limited

Citation: 2011 (263) E.L.T. 661 (Guj.)

Issue: - When cenvat credit is reversed then there is no need of reversal of Cenvat credit.

Brief Facts:- Respondent assessee is engaged in the manufacture and clearance of P & P medicines falling under Chapter 30 of Central Excise Tariff Act, 1985. Respondent were manufacturing both dutiable and exempted products. Respondent were availing modvat credit of duty paid on the raw materials used in the manufacturing of their products.

An audit objection was raised regarding availment of credit on raw material used in the manufacture of exempted product. Respondent contended that it was not possible for them to maintain separate records for common inputs. However, they agreed to work on the modvat credit in respect of the inputs used in manufacture of exempted final product and reverse the credit so availed by it. Accordingly, respondent reversed the modvat alongwith interest.

Revenue issued show cause notices demanding duty equal to 8% of the total price of the exempted final goods with interest and penalty. The Adjudicating Authority held that though the issue was decided in favour of respondent in many cases as well as by the decision of the Supreme Court in M/s Chanrapur Magnet Wires Ltd [1996 (81) ELT 3 (SC)], in light of the Circular stating that assessee has no option but to reverse 8% of the price of exempted products, and which is binding on them, the demand with interest was confirmed and equal penalty was imposed.

The Tribunal set aside the impugned order and allowed the appeal of the respondent. Aggrieved by the impugned order, Revenue is in appeal before the High Court.

Appellant’s Contention:- Revenue contended that in the light of the provisions of Rule 6 of the Cenvat Credit Rules, 2002 it was incumbent upon the assessee to either maintain separate accounts or pay duty at the rate of 8% in case it did not opt to maintain separate accounts.

Respondent’s Contention:Respondent-assessee contended that the Tribunal has placed reliance upon the decision in the case of M/s Chandrapur Magnet Wires Ltd., as well as a decision of High Court in case of M/s Maize Products v. Ahmedabad [2007 (79) RLT 662]. It was submitted that the Revenue’s appeal in High Court was dismissed as reported at 2009 (234) ELT 431 (Guj). It was submitted that the decision of the Tribunal being in consonance with the principles enunciated by this Court as well as the Supreme Court in the above referred decisions, no case is made out to warrant any interference.

Reasoning of Judgment:- It was noted that the Tribunal has merely followed the decision of the Supreme Court in the case of M/s Chandrapur Magnet Wires Ltd as well as the decision of the High Court in the case of M/s Maize Products.

It was noted that this Court had held that “…Under the Rule, Explanation-1 provides that the amount mentioned in any of the conditions shall be paid by the manufacturer by debiting the Cenvat credit or otherwise.” It was further held that “……the respondent-assessee having accepted before the Tribunal to reverse the Cenvat credit as recorded by the Tribunal…and accordingly the Tribunal has issued directions accordingly.”

It was held that examining the impugned order of the Tribunal it cannot be said that Tribunal has committed any legal infirmity which require interference. No question of law arises.

Decision:- Appeal accordingly dismissed.

Comments:- This is very good decision as Mumbai High Court has maintained in case ofNicholas Primal (India) Ltd [2009-TIOL-649-HC-MUM-CX] that the assessee does not have any option except to reverse the cenvat credit @ 8%. Even the government has given retrospective amendment after this judgement. But this decision of Gujarat High Court has given relief to assessee.

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PJ/Case Laws/2010-11/1068

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