By TIOL News Service

MUMBAI, APRIL 06, 2017: THE appellants are engaged in the manufacture of various particleboards [CH 4410] and had stock of capital goods, spares/consumables on which 50% credit was availed and utilised by the assessee.

The appellant stopped duty payment on finished goods by claiming exemption under notification no. 6/06-CE.

SCNwas issued alleging that since these items were not utilised in the manufacture of dutiable goods, the credit is liable for reversal.

In adjudication, the credit of Rs.1,63,256/- was denied and interest and penalty was also imposed.

Incidentally, the said amount of CENVAT credit was paid by the appellant.

The Commissioner (Appeals) rejected the appeal on the ground that as per Rule 11 of CCR, 1944 when the finished goods became exempted the appellant was not entitled to the credit of unutilized goods and they were supposed to reverse the credit.

The appellant is before the CESTAT.

None appeared on behalf of the appellant on the date of hearing.

The AR heavily relied upon Rule 11 and submitted that once the final product became exempted the credit availed should be reversed. Moreover, as the appellant had not contested the duty liability at the time of adjudication, therefore, the issue of demand of CENVATcredit attained finality and could not be reconsidered at this stage, it was emphasised.Reliance is placed on the decision in R.A. Casting P. Ltd. 2015-TIOL-929-CESTAT-DEL.

The Bench observed –

++ …the present case is related to the cenvat credit availed on the capital goods. As per the provisions of cenvat credit on capital goods, only if the capital goods is used exclusively for exempted goods, credit is not admissible. In the present case after receipt of the capital goods on which credit was denied the finished goods was dutiable. Subsequently, the finished goods became exempted, therefore, it cannot be said that the capital goods were used exclusively for exempted goods….

++ On careful reading of the above Rule [11 of CCR, 2004], it is clear that this provision is applicable only in respect of inputs or input services and not on capital goods . Therefore, the payment of amount equivalent to the cenvat credit in respect of stock of capital goods as on date of exemption is not applicable in the facts of the present case. As regards the submission of Ld. AR that the appellants have not challenged the duty liability at the adjudication stage, I find from the records that though they have paid the amount of cenvat credit but they have filed the appeal before the Commissioner (Appeals) challenging the entire order. Even before this Tribunal also the appellant is seeking setting aside the Commissioner (Appeals)'s order. Therefore, it cannot be said that the appellant has not challenged the demand of cenvat credit .

Holding that the impugned order is not sustainable, the same was set aside and the appeal was allowed with consequential relief.

(See 2017-TIOL-1147-CESTAT-MUM)