ORDER
S.L. Peeran, Member (J)
1. This appeal arises from OIA No. 206/05 CE dated 20.1.05 by which the Commissioner (Appeals), has confirmed OIO No. 22/05 dated 23.8.05 passed, by Assistant Commissioner of Central Excise, Bangalore confirming demands and imposing penalty for not having paid 8% of the sale price excluding sales tax and other taxes as required under Rule 6 of Cenvat Credit Rules 2002 as they had cleared exempted goods and had not maintained separate inventories. The appellants had cleared one friction welding machine valued at Rs. 34 lakhs without payment of duty under Notification No. 10/97 dated 1.3.97. They had availed modvat credit. However, prior to removal of the goods they reversed the credit of Rs. 1,60,187/- along with interest, since credit was availed from April 2000 onwards till the date of removal i.e. 31.12.2003. The department was not satisfied with the reversal of the credit along with interest and issued show cause notice after a lapse of one year on the ground that they had not maintained separate inventories, therefore in terms of Rule 6A of Cenvat Rules they were not eligible for Cenvat credit on such quantity of inputs used in the manufacture of exempted goods as per Sub-rule (1) of Rule 6 of Cenvat Credit Rules 2002.
2. The appellants contention before the authorities and before the Tribunal is that before the goods were removed, they reversed the credit along with interest and the situation was that as if they have not availed the Cenvat credit and therefore, the question of their depositing 8% of the sale price as required under Rule 6 of Cenvat Credit Rules 2002 for not maintaining separate inventories does not arise. They had taken support from the Apex Court judgment in the case of Chandrapur Magnet Wires (P) Ltd. v. CCE Nagpur wherein it has been held that when modvat credit is taken on the inputs utilized in the manufacture of final exempted products and on their debiting in the modvat credit, it has been held that on reversal of such modvat credit, the assessee cannot be said to have taken credit of duty on the inputs utilized in the manufacture of exempted final product. It is their contention that the finding recorded by both the authorities that the Apex Court ruling does not apply after the amendment to Cenvat Rules is not correct as the fundamental principle of Cenvat credit has not been disturbed. Once they have reversed the credit it is as good as not having taken the credit on the duty discharged and therefore, the question of reversing 8% of sale price in terms of Rule 6 of Cenvat Credit Rules does not arise. It is pointed out by learned Chartered Accountant, that the revenue has relied on the ruling of National Information Technologies Ltd. 2005 (179) ELT 405 wherein the assessee had not maintained separate inventories in respect of duty paid inputs used in the manufacture of exempted goods and therefore it was held that they were liable to pay 8% of the price of the exempted goods. However, the Tribunal did not deal with the situation where the Cenvat credit had been reversed before the removal of goods. Hence this Tribunal ruling is not applicable at all to the facts of the case.
3. Learned DR strongly relied on the ruling of National information technologies Ltd., and prays for dismissal of the appeal.
4. On a careful consideration, I am of the considered opinion that the principle laid down by the Apex Court in the case of Chandrapur Magnets case continues to apply despite the introduction of new Cenvat Rules. The Cenvat credit is availed when duty has been paid on the inputs. The said principle continues to operate even under the new rules. Therefore, on reversal of the Cenvat credit availed on inputs on removal of exempted goods, the situation is put back in as much as the appellants are deemed not to have availed credit at all. This is not the situation as in the case of National Information Technologies where the assessee had not reversed the input availed on the exempted gods. Hence, the Tribunal confirmed the demands at 8% of the price of the exempted goods. The ratio of the Chandrapur Magnets case applies to the facts of the case as the assessee had reversed the credit at the time of removal of goods as the assessee had reversed the credit at the time of removal of goods, hence they are not required to pay 8% of the price of the exempted goods as confirmed in the impugned order. The appeal is allowed with consequential relief if any.
(Pronounced and dictated in open court)