2026-VIL-396-CESTAT-CHE-CE
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CENTRAL EXCISE CESTAT Cases

Central Excise - Reversal of excess CENVAT Credit - Assessee cleared inputs "as such" to its sister manufacturing units and debited higher amounts in its CENVAT credit account based on internal accounting methodology, resulting in excess reversal - Whether such excess reversal amounted to "passing on excess credit" in violation of Rule 3(5) of CENVAT Credit Rules, 2004 and whether it led to recoverable demands under Section 11A and Section 11D of Central Excise Act – HELD – The Rule 3(5) of CCR, 2004 creates a statutory obligation of neutralization. It does not create a ceiling. The provision ensures that the credit taken does not remain with the assessee once the inputs are removed without being used in manufacture - Rule 3(5) of CCR only mandates minimum equal reversal of credit availed, and does not prohibit higher reversal. Excess reversal leads to higher payment to Government and cannot be construed as passing on irregular benefit. Section 11D applies only when an assessee collects any amount representing duty from a buyer, which is absent in the present case of inter-unit stock transfers. Denial of CENVAT credit to recipient units is legally unsustainable as the debit at the supplier unit has not been refunded. Penalty is also not sustainable as the issue involves interpretation of law and there is no fraud or suppression. The demands and penalties are set aside – The assessee appeals are allowed and the Departmental appeal is dismissed - Denial of CENVAT Credit to Recipient Units - Supplier unit debited higher amounts in CENVAT credit account while clearing inputs "as such" to recipient units - Whether such denial of credit to recipient units is sustainable – HELD - Once the supplier unit has reversed the credit, the same has not been refunded or set aside. Therefore, denial of credit to recipient units would amount to double/excess recovery, which is against the intent of CENVAT scheme to avoid cascading of taxes – The denial of credit to recipient units is legally unsustainable and set aside.
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