Cenvat Credit taken before opting for Compound Levy Scheme

PJ/Case Study/2011-12/25

CASE STUDY

Prepared By:
CA Pradeep Jain,
Sukhvinder Kaur, LLB [FYIC]
And Megha Jain, B. Com

Introduction: -

Under the Compound Levy scheme for stainless steel patta/patti, the assessee is to pay duty on its capacity to manufacture patta/patti i.e. duty is to be paid at fixed rate as per the machines installed in the factory. One of the conditions to opt for paying duty under the compound levy was that the assessee cannot take cenvat credit on the raw materials, capital goods and on inputs services. However, the anomaly arises when the assessee has availed cenvat credit on inputs immediately before opting for compound levy and the said raw material is used in the goods under process. In such situation, whether the assessee has to reverse the cenvat credit taken by him when he was under Cenvat credit scheme? In the case under study, this very situation has arisen.

In the matter of M/s Arihant Steel, Jodhpur
[Order-In-Original Dated: 13.04.2011]

Brief facts of the case: -

- The Assessee is engaged in the manufacture of Stainless Steel Cold Rolled Patta/Patti falling under Chapter 72 of the first schedule to the Central Excise Tariff Act., 1985. They were taking and utilizing Cenvat Credit under the provisions of Cenvat Credit Rules, 2004 until 31.01.2009. On 31.01.2009 assessee shifted to compound levy scheme for Stainless Steel & Cold Rolled Patta/Patti, vide Notification No. 17/2007-CE dated 01.03.2007 issued under Rule 15 of the Central Excise Rules, 2002 and under this optional scheme, the assessee started paying certain sum in discharge of his duty liability on the basis of number of cold rolling machines installed for cold rolling of stainless steel patta/patties in their premises as per rate of duty fixed per cold rolling machine per month.

- On being inquired by the Superintendent, Central Excise Range, Jodhpur-I vide his letter, the assessee replied vide their letter that they had 1046.8 Kgs. of S.S. Scrap, 110482.010 kgs. in work in progress and 7625 kgs of Furnace Oil & Acid etc. in stock as on 31.01.2009. The assessee also informed that Cenvat credit of Rs. 5,14,067/- (Cenvat Rs. 4,99,095/-, Education Cess Rs. 9,981/-, Higher & Secondary Education Cess Rs. 4,991/-) was taken by them on such input and inputs contained in finished goods and contained in under process goods as on 31.01.2009, when they opted to avail the special procedure under Notification No. 17/2007-CE dated 01.03.2007. The assessee also informed that they have left balance of Rs. 1,56,842/- Cenvat, Education Cess Rs. 2,402/-, Higher & Secondary Education Cess Rs. 1,528/-in their Cenvat credit account.

- Department issued show cause notice to the assessee alleging that they had wrongly utilized the Cenvat credit contained in semi-finished and finished goods lying in the stock as on that date. It was alleged that as per provisions of notification no. 17/2007-CE dated 01.03.2007, no Cenvat credit of duty paid on any inputs/capital goods/input services can be taken for manufacture of the goods by the unit operating under compounded levy scheme.

Assessee’s Contention: -

The assessee made following submissions before the Adjudicating Authority:

- That once the credit is rightfully earned, it cannot be reversed unless there is any specific provision for the same. Where the credit has been earned on the inputs judgment of the Hon’ble Supreme Court in EICHER MOTORS LTD. V. UNION OF INDIA REPORTED IN 1999 (106) E.L.T. 3 (S.C.) = (1999) 2 SCC 361, it was found, that once the capital goods which have already been utilised, and the credit has been received against their utilisation, then no demand can be made for recovery of credit already been earned validly. This decision was rendered in context of quashing the validity of a provision that sought reversal of credit after it is earned rightfully.This decision says that where there is any non-obstante clause in the notification, then too it cannot be given retrospective effect for demanding the credit earned rightfully. Similar decision is given by hon’ble Rajasthan High Court in the case of SHANKESHWAR FABRICS PRIVATE LTD. Versus UNION OF INDIA [2002 (142) E.L.T. 42 (Raj.)]. The verdicts of hon’ble High Court are reproduced as follows:-

Modvat - Independent processors of processed textile fabrics denied benefit of utilisation of Modvat credit as per Clause 5 of Notification No. 36/98-C.E., dated 10-12-1998 - Right to Modvat credit accrues to assessee on the date he pays tax on raw materials or inputs - Credit having been taken by assessee, Clause 5 of the notification ibid not to be given retrospective effect so as to nullify Modvat credit earned by assessee. - Under the Modvat Scheme, the right to credit becomes absolute where the input is used in manufacturing of the final product. The right is accrued to the assessee on the date he paid the tax on raw materials or inputs and that right would continue until the facility available thereto gets worked out or until these goods existed. Thus, once the capital goods which have already been utilised and the credit has been received against their utilisation, then Clause 5 cannot be given retrospective effect so as to nullify the Modvat credit, which has already been earned by the individual writ petitioner. It is further significant to note that sub clause (a) of Clause (6) of the impugned notification clearly provides a non obstante clause to the effect that nothing contained in the notification shall apply to any goods manufactured or produced prior to 16-12-1998 and cleared on or after that date. [(1999) 2 SCC 361 relied on]. [para 6]

Similar decision has also been given by the hon’ble Delhi High Court in the case of SUPREME STEELS & GENERAL MILLS Versus UNION OF INDIA [1997 (96) E.L.T. 232 (Del.)]. The verdicts of hon’ble High Court are produced as follows:-

“Modvat credit - Lapse of credit - Rule taking away the Modvat credit already earned whether ultra-vires the Act - Provision for lapsing of credit for specified commodities whether whimsical and discriminatory and hit by Article 14 of the Consitution of India - Such provisions confiscatory and retrospective in nature- Amended Rule 57F of Central Excise Rules, 1944 providing for lapsing of Modvat credit from 1-8-1997 for specified goods stayed till the disposal of writ petition and Petitioners entitled to utilise the Modvat credit already earned subject to furnishing of undertaking - Notification Nos. 24/97, 30/97, 31/97, 32/97, 33/97, 47/97, 48/97, 44/97, 45/97, 58/97 and 59/97.”

Thus, the right to avail credit occurs at the time of paying tax on the raw material or inputs. Hence, where the credit is earned validly at the time of procuring the raw material, this right would continue to be with the assessee until these goods existed. In the instant case, the noticee has rightfully taken the credit and at the time of taking the credit, there was no embargo in taking the same. Further, there is no prohibition in the Cenvat Credit Rules, 2004 which says that the credit has to be reversed on the same. Thus, applying the ratio of these decisions, the credit need not be reversed until the goods are in existence. Thus, the contention of the impugned show cause notice that the credit is required to be reversed is not legally sustainable and is liable to be set aside.

- That reversal of duty paid on inputs is only required if the assessee avails exemption. On the other hand, the switching over from normal procedure to compounded levy does not mean opting for exemption. It is merely shifting from one mode of payment to another. Thus, the provision of reversal of duty paid on inputs contained in the semi-finished and finished goods stock is not applicable here. This was held in the case of Savitri Concast Pvt. Ltd. vs. Commissioner of Central Excise, Jaipur [2001 (138) ELT 296 (Tri.-Del.)]. The decision of hon’ble Delhi Tribunal in this case is produced as follows:-

“Modvat - Ingots - Appellants - Switching over to compounded levy option under Section 3A of the Central Excise Act, 1944 and not opting for exemption from payment of Central Excise duty as stipulated under erstwhile Rule 57H(7) of Central Excise Rules, 1944 - Balance credit lying in respect of inputs on the notified date having not been used thereafter and having already lapsed in terms of erstwhile Rule 57F(17)(c) ibid, no further duty in respect of such inputs, leviable - Erstwhile Rule 57-I ibid. [para 3]”

The same decision was given in the cases cited as follows: -

·                     Kakda Rolling Mills vs. Commissioner of Central Excise, Bhopal [2005 (179) ELT 457 (Tri.-Del.)]
·                     Jagannath Steel (P) Ltd. vs. Commissioner of Central Excise, Allahabad [2006 (205) ELT 525 (Tri.-Del.)]
·                     Nakoda Steels P. Ltd. vs. CCE, Jaipur [2002 (51) RLT 1059 (CEGAT-DEL.)]

In all the above cases, it was held that switching from one mode of payment to another mode of paying duty cannot be equated with claiming Exemption and thus duty cannot be demanded on the inputs contained in the semi-finished and finished goods in the stock at the time of shifting from normal procedure to compounded levy scheme. The case of Nakoda Steels as cited hereabove was particularly relating to S.S patta patti which is the finished goods of the noticee. Thus, extending the ratio of these decisions, the impugned show cause notice should be set aside.

- It is further submitted that there is no provision, neither in the Cenvat Credit Rules, 2004 or in the compounded levy scheme which says that the accumulated unutilized credit will lapse on adoption of compounded levy scheme. In absence of any specific provision in this regard, the reversal of credit cannot be demanded. This has been held in the following case:-

COMMR. OF C. EX. & CUS., SURAT-I Versus ANNAPURNA INDUSTRIES P.LTD. [2010 (255) E.L.T. 197 (Guj.)] -

Refund of credit - Cenvat/Modvat - Refund of accumulated deemed credit - Appellant not able to show statutory provision or circular to show that accumulated unutilised credit shall lapse on introduction of compounded levy scheme - Impugned Tribunal order holding accumulated credit shall not lapse when provision therefor absent, sustainable - Substantial question of law not arises - Rule 57C of erstwhile Central Excise Rules, 1944 - Rule 5 of Cenvat Credit Rules, 2004. [paras 2, 4, 5]

Similar decision has been given by the larger bench of Delhi Tribunal wherein it is held that no power is vested with the Central Excise authorities which empowers them to sought reversal of credit except where the credit is earned fraudulently or illicitly. This decision has been given in the case of COMMISSIONER OF C. EX., RAJKOT Versus ASHOK IRON & STEEL FABRICATORS [2002 (140) E.L.T. 277 (Tri. – LB]. The relevant part of this decision is reproduced as follows:-

“……… There is no provision in the Rules which provides for a reversal of credit by the excise authorities except where it has been illegally or irregularly taken, in which event it stands cancelled or, if utilised, has to be paid for. Here, the credit has been validly taken and its benefit is available to the manufacturer without any limitation in time or otherwise unless the manufacturer itself chooses not to use the raw material in its excisable product. The credit is, therefore, indefeasible. It should also be noted that there is no co-relation of the raw material & final product. [1999 (112) E.L.T. 353 (S.C.); 2001 (130) E.L.T. 417 (Ker.) relied on]. [paras 6, 7]”

Thus, in this decision, larger bench has held that the Central Excise Authorities cannot demand reversal of duty paid on inputs which has been rightfully availed by the assessee. The reversal cannot be demanded unless the credit has been earned illicitly or in case the materials are not used in the manufacture of goods. In the instant case, no doubt has been raised regarding the validity of credit earned. Hence department agrees that the credit has been earned rightfully. Further, the inputs have been used in the manufacture of excisable products. Thus, in the light of above decision, the reversal demanded in the impugned show cause notice is not viable and is liable to be quashed.

- That the impugned show cause notice has re-produced various provisions of Cenvat Credit Rules, 2004 viz. rule 3(1), 3(4), 2(h) and rule 2(k). The rule 3(1) prescribes that the manufacturer or service provider shall be allowed to take credit of specified inputs/capital goods received in the factory of manufacturer or premises of service provider. The noticee was duly allowed to take the credit at the time of receipt of inputs and no allegation has been raised in this regard in the show cause notice. Rules 2(h) gives definition of final products which says that final products are the excisable goods manufactured or produced form inputs/input services. There is no doubt that the goods manufactured by the noticee, i.e. stainless steel patta/pattis are excisable. Rule 2(k) defines inputs which say that the inputs are goods used in or in relation to manufacture of the final products. Thus, the raw materials used for manufacture of excisable goods, i.e. SS patta/pattis are inputs and there is no doubt regarding this fact. Rule 3(4) states the manner of utilization of Cenvat credit so availed in accordance with rule 3(1). It is alleged in the impugned show cause notice that the noticee has contravened the provisions of rule 3(4) by not utilizing the Cenvat credit so availed for payment of excise duty; as the excise duty under compounded levy is payable in cash. This allegation indicates that the learned adjudicating authority has taken the view that the rule 3(4) of Cenvat Credit Rules, 2004 is mandatory and in case the assessee is not able to utilize at all the credit under rule 3(4); it results into violation of this rule. In this regard, it is submitted that this rule 3(4) is optional one and it laids down the manner in which the credit is to be utilized if the manufacturer intends to utilize the same.

The analysis of Rule 3 (4) makes it clear that this rule starts with the phrase ““(4) The CENVAT credit may be utilizedfor payment of –“. The use of word “may” indicates that this rule is optional. Thus, the provisions of this rule are applicable only where the assessee intends to utilize the Cenvat Credit so availed. Further, this rule contains various provisos which states the restrictions regarding utilization of credit. These provisos give a list of cases where the accumulated credit cannot be utilized. But this list does not contain any case which says that the credit so taken has to be mandatorily utilized unless the provisions of this rule will get violated.

Thus, the contention of the impugned show cause notice that this rule is mandatory and failure to utilize the credit for payment of duty will lead to its violation is not sustainable. Thus, the contention of the impugned show cause notice that the noticee has violated the provisions of rule 3(4) of the Cenvat Credit Rules, 2004 is not tenable and is liable to be quashed.

- That in the view of above submissions it is clear that the impugned show cause notice has not been able to prove the allegation that the provisions of Cenvat Credit Rules, 2004 have been violated. Thus, the impugned show cause notice issued for contravention of provisions of Cenvat Credit rules is not legally sustainable and is liable to be quashed. Further, the show cause notice has proposed to impose the penalty under Rule 15(2) of the Cenvat Credit rules, 2004. Referring to the said Rule it was submitted that this rule says that the penalty shall be imposable where the Cenvat Credit has been taken or utilized wrongly by various reasons specified herein. In other words, penalty will be imposable if the CREDIT HAS BEEN TAKEN OR UTILIZED WRONGLY. In the instant case, the credit is neither taken wrongly nor it is utilized wrongly. The impugned show cause notice has failed to prove the allegation that the credit is taken/utilized wrongly. Thus, the conditions specified in this rule have not been satisfied and thus, the invocation of this rule is not sustainable. Therefore, no penalty is imposable under this rule.

- In continuation to above it is submitted that the penal action proposed in the impugned show cause notice is not sustainable as they had not reversed the credit by relying on the various decisions. Thus, their act was based on bonafide belief depending upon a no. of judgments as listed hereabove. It has been held in various cases that no penalty is warranted when the assessee has acted on the basis of bona fide belief. Even the highest court of India – Hon’ble Supreme Court has held in the case of COMMISSIONER OF CENTRAL EXCISE, TRICHY Versus GRASIM INDUSTRIES LTD. [2005 (183) E.L.T. 123 (S.C.)]that where the act of assessee is based on the interpretation taken by the Tribunal, penalty cannot be imposed as the act is based on bona fide belief. The verdicts of Apex Court are produced as follows:-

“Penalty - Bona fide belief caused by Tribunal’s decision - Tribunal in a number of cases giving an interpretation as understood by assessee - Penalty not imposable - Rule 173Q of erstwhile Central Excise Rules, 1944 - Rule 25 of Central Excise Rules, 2002. [para 20]”

Therefore, penalty cannot be imposed on them for the charge of suppression of facts. This has also been held in the following cases:-

·                     Star Neon Singh vs. Commissioner of Central Excise, Chandigarh [2002 (141) ELT 770 (Tri.-Del.)]
·                     Straw Products Ltd. vs. Collector of Central Excise, Indore [1996 (87) ELT 115 (Tribunal)]
·                     Johnson & Johnson Ltd. vs. Collector of Central Excise, Bombay [1995 (78) ELT 193 (Tribunal)]
·                     Indian Explosives Ltd. vs. Collector of Customs [1992 (60) E.L.T. 111 (Cal.)]
·                     Tata Engineering & Locomotive Co. Ltd. vs. Collector of Customs [1991 (56) E.L.T. 812 (Tribunal)]
·                     SuratMunicipal Corpn. Vs. Commissioner of C. Ex., Surat [2006 (4) S.T.R. 44 (Tri. - Del.)]

Thus, the impugned show cause notice is not sustainable and is liable to be set aside.

- It is further submitted that the impugned show cause notice is alleging that the provisions of notification no. 17/2007-CE dated 01.03.2007 have been contravened. In this regard, it is submitted that the prohibition contained in the notification no. 17/2007-CE regarding non-taking of Cenvat Credit reads as follows:-

“Provided that no credit of duty paid on any raw materials, component part or machinery or finished products used for cold rolling of stainless steel pattis/pattas, or aluminium circles under the CENVAT Credit Rules, 2004 shall be taken:”

The analysis of this proviso makes it clear that where the manufacturer opts for compounded levy scheme, he shall not take the credit of duty paid on inputs/capital goods. Thus, the use of word “shall” indicates the futuristic aspect of the notification. In other words, it is only after the benefit of this notification is availed, the credit cannot be taken. However, where the credit has already been taken and the finished goods have been manufactured and thereafter the benefit of this notification is taken; this prohibition will not be applicable. It is only after the compounded levy is opted, the credit is not required to be taken henceforth. As such, the impugned order demanding the reversal of credit that has already been taken rightfully and goods have also been used in the manufacture of final products; is not sustainable and is liable to be set aside.

- In continuation to above it is submitted that even if it is accepted for the sake of argument that the provisions of this notification have been contravened, then why the benefit of Cenvat Credit have been denied when there is no contravention of Cenvat Credit Rules, 2004. Thus, if the department alleges that there was contravention of provisions of this notification, then the benefit of this notification was to be denied rather than demanding the reversal of Cenvat Credit. Thus, the entire show cause notice is based upon wrong foundation and as such is liable to be set aside.

Issue:

Whether assessee who has availed cenvat credit on raw materials before opting for compound levy scheme can utlise such credit afterwards or not?

Judgment of the Adjudicating Authority:-

The learned Adjudicating Authority held as under:

- It was noted that assessee had not availed fresh cenvat credit on any raw material, component part or machinery or finished products used for rolling of Stainless Steel Pattas/Pattis not utilized the same towards payment of duty on or after 31.01.2009 i.e. from the date of opting for special procedures under compounded levy scheme.

- It was found that assessee had availed the cenvat credit on the input raw materials in question before 31.012009 when they were working under cenvat credit scheme. Thus they might have presumed that they were entitled to take the cenvat credit on the inputs received in their factory during the period up to 30.01.2009 in terms of rule 4(1) of the Cenvat Credit Rules, 2004 which stipulates that the cenvat credit in respect of inputs may be taken immediately on receipt of the inputs in the factory of the manufacturer. They have 110482.01 Kgs. of S.S. Flat rolled patta in stock of work in progress as on 31.012009 besides SS scrap, Furnace oil & acid. The assessee also informed that cenvat credit of Rs. 5,14,067/- was taken by them on such input, contained in under process goods as on 31.01.2009 when they opted to avail special procedure under Notification no. 17/2007-CE dated 01.03.2007.They informed that they have left Cenvat credit balance of Rs. 156842/-, Ed cess 2402/- and SHE cess of Rs.1528/-.

- With regard availment of cenvat credit, it was found that as per rule 3 (1) of the Cenvat Credit Rules, 2004 a manufacturer or producer of final products shall be allowed to take credit of specified duties paid on any specified input or capital goods and other materials received in the factory of manufacture of final product. As per rule 3 (4) of the Cenvat Credit Rules, 2004 the CENVAT credit may be utilized for payment of any duty of excise on any final product; or an amount equal to CENVAT credit taken on input if such inputs are removed as such or after being partially processed; or an amount equal to the cenvat credit taken on capital goods if such capital goods are removed as such etc provided that while paying duty of excise the cenvat credit shall be utilized only to the extent such credit is available on the last day of the month or quarter, as the case may be, for payment of duty relating to that month or the quarter, as the case may be.

It was found that the fact of receipt of goods involving cenvat credit in the factory premises of the assessee on or before 30.01.2009, when they were working under cenvat credit scheme and paying normal duty, is not in dispute. Show Cause Notice has also not challenged the admissibility of the cenvat credit In respect of the said goods received before 31.01.2009. Once the assessee was legally entitled to take credit on the goods in question, the same could have been utilized for payment of specified duties in terms of rule 3 (4) of the Cenvat Credit Rules, 2004. The assessee utilized Cenvat Credit which was contained on the raw material lying in stock on the date of opting for special procedure. In terms of the provisions of rule 3 (4) (a) of the Cenvat Credit Rules, 2004, cenvat credit may be utilized for payment of any duty of excise on any final product. Thus there is no one to one Correlation between the inputs and the final products meaning thereby cenvat credit can be utilized immediately against duty payment of goods and such goods not necessarily be manufactured out of such inputs. The department has also not raised any question on the proper utilization of the cenvat credit for the payment of duty. The Adjudicating Authority found that the availment and utilization of cenvat credit b^ythe assessee up to the period of 30.01.2009 is proper and legal as per the provisions of Cenvat Credit Rules, 2004 and moreover there is no allegation made in the Show Cause Notice on this count.

- The Adjudicating Authority found that up to the period of 30.01.2009 the assessee was paying the duty at normal effective rate and they were availing cenvat credit of duty paid on the eligible goods used in their factory in or in relation to the manufacture of specified final products. The assessee opted for compounded levy scheme with effect from 31.012009 as envisaged under notification no. 17/2007-CE- dated 01.03.2007 issued in exercise of the powers conferred by rule 15 of the Central Excise Rules, 2002. The relevant portion of the said notification no. 17/2007-CE dated 01.03.2007.

In the notification no. 1712007-CE dated 01.03.2007 stainless steel patta or patties produced by the assessee falling under Chapter 72 Of the First Schedule to the Central Excise Tariff Act, 1985 have been noted for payment of duty of excise on the basis of cold rolling machine installed for cold rolling of these goods at the fixed rate of duty per cold rolling machine, per month also known as compounded levy in as much as the duty paid under this procedure shall be in full discharge of his liability for duty leviable on his production of such cold re-rolled stainless pattas/pattis. The compounded levy scheme provided under notification no. 17/2007-CE dated 01.03.2007 is purely optional and in order to avail the scheme producer has to opt for the same and to follow prescribed procedure mentioned in the said notification. It was found that the assessee had opted for special procedure with effect from 31.01.2009 and started paying duty at the fixed rate per rolling machine per month. They never took or utilized any cenvat credit for payment of duty under this special procedure. The department contended in the show cause notice that levy of duty under compounded scheme has been fixed by the Govt. after taking care of the fact of non availing of credit on the inputs etc. and therefore, the assessee was required to reve^rse the cenvat credit involved on the stock held by them as on 18.11.2008 or to pay ⁱncash if they did no have sufficient balance in their credit account.

- The Adjudicating Authority did not find the contention of the department legally tenable to the extent of proposed recovery of cenvat credit already taken and utilized by the assessee on the inputs well before opting for compounded levy scheme under notification no. 17/2007- CE dated 01.03.2007 in as much as proviso to notification no. 17/2007- CE dated 01.03.2007 was not applicable to them at time they availed and utilized the said credit. The proviso came in operation only from the date when they opted for special procedure i.e. with effect from 31.01.2009. As discussed above the assessee had availed/utilized the cenvat credit properly and legally involved on the inputs in question up to 30.01.2009 and thereafter when they opted to work under notification no 17/2007- CE dated 01.03.2007. They have neither taken nor utilized credit. Thereby making complete compliance of the condition stipulated under proviso to the said notification no. 17/2007- CE dated 01.03.2007. The proviso to notification no. 17/2007- CE dated 01.03.2007 stipulates the condition that 'no credit of duty paid on any raw materials, component part or machinery or finished products used for cold rolling of stainless steel patti/patta, or aluminium circles under Cenvat Credit Rules, 2004 shall be taken'. The words 'shall be taken' denotes the future transaction taking place on or after opting for the compounded levy scheme under notification no. 17/2007- CE dated 01.03.2007. Had it be the intention of the law to restrict the use of such raw materials in or in relation to the goods manufactured under compounded levy, there would have specific provision in the rules or the said notification no. 17/2007- CE dated 01.03.2007. In that event the word 'should have been taken' may have been used in the proviso in place of 'shall be taken' but in fact it Is not so. It is precept of the law that the right of legal and valid entitlement cannot be taken away unless there is specific provision in the law itself. As the assessee had taken and utilized the cenvat credit in question properly before 31.01.2009, It was found that no reason to disallow such credit simply on the ground that subsequently the assessee had opted for compounded levy under notification no. 17/2007- CE dated 01.03.2007. In the instant case the final products which had been manufactured out of raw material in stock as on 31.01.2009 were not exempted but duty has been discharged in full in terms of notification no. 17/2007- CE dated 01.03.2007. In the instant case I agree with the contention of the assessee that it is not a case of wrongly taken and wrongly utilization of cenvat credit. The cenvat credit was legally taken at the time of receipt of inputs in their factory.

- Reliance was placed upon the judgment of the Supreme Court in the case of Collector Vs. Dai Ichi Karkaria Ltd. [1999 (112) ELT 353 (SC)]wherein it was held that credit legally taken is 'indefeasible'. There is no provision in the Rules which provide for a reversal of the credit by the excise authorities except where it has been irregularly or illegally taken. There is no co-relation of the raw material and the final product; that is to say, it is not as if credit can be taken only on a final product that is manufactured out of the particula^r raw material to which the credit is related. Further reliance was placed upon the judgment of the Tribunal in the case of CCE Vs. Bhushan Industries Ltd. [2003 (162) ELT 356 (Trib.)]in a similar case whore cenvat credit was utilized for payment of duty before opting for compounded levy scheme. It was held that cenvat credit already utilized cannot be recovered; however, credit of duty lying unutilized would lapse.

- The Adjudicating Authority further found that relying upon the judgment of the Tribunal, the Commissioner (Appeal). Central Excise, Jaipur-II vide his Order-in-Appeal No. 213/KDT/CE/JPR-II185/ dated 20.03.2002 has also decide the case in favour of M/s Shivam Metals, Jodhpur consequential refund has also been sanctioned by the jurisdictional Asstt. Commissioners vide order-in-Original No. 93/2002-CE, Dated: 13.06.2002.

- In view of the above discussion, interpretation of the law and judgment of the Supreme Court and various Tribunals, the Adjudicating Authority has come to the conclusion that the assessee has not contravened the provisions of notification no. 17/2007- CE dated 01.03.2007 and therefore it was held that Cenvat credit taken and utilized by the assessee up to 30.01.2009 is not recoverable from them under Rule 14 of the Cenvat Credit Rules 2004 read with Section 11 A of the Central Excise Act, 1944 even though such Cenvat credit is attributable to the raw materials lying in the stock of the assessee as on 31.01.2009 and used subsequently in or in relation to the manufacture of goods under compounded scheme on which duty has been discharged at the fixed rate applicable to compounded levy scheme.

It was held that when no duty/ Cenvat credit has been held recoverable the question of recovery of interest under Rube 14 of the Cenvat Credit Rules, 2004 read with Section 11 AB of Central Excise Act. 1944 does not rise.

- With regard to imposition of penalty upon the assessee under Rule 15(2) of the Cenvat Credit Rules, 2004 read with Section 11AC of the Central Excise Act, 1944 and under Rule 25 of the Central Excise Rules. 2004 for willful contravention of the provisions of Notification No 17/2007-CE dated 01.03.2007 read with Rule 15 of Central Excise Rule. 2002 is concerned, the Adjudicating Authority agreed with the contention of the assessee that it is not a case of willful contravention of the provisions of notification no 17/2007 - CE dated 01.03.2007 rather it is a case of interpretation of law. It was found that an assessee desired to opt for compounded levy scheme is required to submit application with the jurisdictional excise office and only after compliance of prescribed procedure; the assessee is allowed to pay duty under compounded levy scheme. Therefore, the allegation of willful contravention of the provisions of notification no 17/2007-CE dated 01.03.2007 is not sustainable. Moreover, the assessee has not contravened the provisions of notification no. 17/2007- CE dated 01.03.2007 and the Cenvat credit is not recoverable from them as such no penalty is imposable under Rule 15(2) of the Cenvat Credit Rules, 2004 read with Section 11 AC of the Central Excise Act, 1944 and under Rule 25 of the Central Excise Rules, 2004.

Decision:-

Proceedings initiated by the impugned show cause notice were dropped.

Conclusion:-

The credit was taken rightly at the time of operation under Cenvat scheme. There is no provision under Cenvat credit Rules to reverse the cenvat credit while shifting from one scheme of payment of duty to another scheme of payment of duty. When an assessee shifts from advalorem scheme to special procedure of compounded levy, it is not exemption from duty. The learned adjudication officer has rightly held that the proviso under notification 17/2007 is applicable from the date of opting for the same. Thereafter the assessee has not availed the cenvat credit. Hence there is no contravention of the scheme. There is no need to reverse the cenvat credit taken on inputs which are lying in stock on the date of opting for compounded levy scheme.

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