Discrepancy on Reversal of Cenvat Credit for opting SSI Exemption found at Time of Audit: CESTAT upholds Reversal by Assesee along with interest for intervening Period [Read Order]

The Kolkata bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT)upheld the  reversal by assesee along with interest for intervening period as the discrepancy on reversal of cenvat credit for opting ssi exemption found at time of audit.

The impugned order was challenged by the appellant M/s Panihati Rubber Limited. The appellant is engaged in the manufacture of rubber products and availing the benefit of SSI exemption.

During the period from 31.03.2000 to 31.03.2004, the appellants have availed the benefit of SSI exemption from the beginning of every financial year and was clearing its finished goods without payment of duty.

After crossing the exemption of Rs.1.00 Crore, the appellant commenced payment of duty as leviable on final products and also started availing modvat/cenvat credit on inputs. Again, the appellant opted for SSI exemption benefit and cleared the goods without payment of duty and upon crossing the exemption limit started paying duty and availing modvat/cenvat credit.

On reaching the turnover of Rs.1.00 Crore when duty liability commenced, it became entitled to avail modvat credit and the appellant was required to calculate the total credit available on inputs in stock  and those contained in works in process and finished goods and take such credit , which could be utilized for payment of duty on the finished goods.

When the appellant opted for the benefit of SSI exemption in the next financial year, the appellant was required to reverse the cenvat credit on input and those contained in works in process and finished goods as on 31st March of each year.

It was viewed that the appellant neither took the cenvat credit on inputs lying in stock, inputs contained in works in process or in finished goods when it came out of the SSI exemption, nor did it reverse the credit on inputs lying in stock or input contained in works in process and finished goods at the time of opting for SSI exemption benefit.

 The appellant became liable for payment of duty on years which it again started availing the SSI exemption. During the time of Audit , it was pointed out that the appellant was required to reversal of cenvat credit with reference to the stock at the time of opting SSI exemption and going into the exemption.

The appellants rectified their mistake by computing the cenvat credit involved on inputs and those contained in work-in-process and finished goods on respective dates and making necessary entries in RG- 23A Part II on 28.07.2005 for taking its entitlement of cenvat credit and reversed the credit as required.The appellant also paid the interest on the said amount for the intervening period.

A show-cause notice was issued  to the appellant for recovery of cenvat credit , which was debited from the amount, the same has to be paid through PLA and penalty was also proposed on the appellant. The demand was confirmed by the impugned order.

It was submitted by the counsel of the appellant that the appellant has reversed the cenvat credit and paid interest thereon. Therefore, no show-cause notice has been issued to the appellant. Further, it is his contention that the show-cause notice is barred by limitation as during the course of Audit, the appellant is required to make reversal of cenvat credit at the time of opting for SSI exemption notification in each year and the same has been intimated by the appellant vide letter dated 9th July, 2004 and the appellant rectified their mistake by reversing cenvat credit on 28.07.2005.

 A two member bench comprising Mr.Ashok Jindal, Member (Judicial) and Mr.K.Anpazhakan, Member (Technical) viewed that the discrepancy regarding the reversal of cenvat credit while opting SSI exemption came to the Department at the time of Audit and the appellant reversed the cenvat credit along with interest for intervening period.

Further held that “the proceeding against the appellant is not sustainable.Accordingly, the impugned order is set aside and the appeal is allowed  by confirming reversal of cenvat credit by the appellant and  the payment of interest thereof for the intervening period.”

To Read the full text of the Order CLICK HERE

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