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PJ/Case Law /2016-17/3293

Credit reversal on removal of capital goods.

 Case:-COMMISSIONER OF CENTRAL EXCISE, VAPI VERSUS BALSARA HOME PRODUCTS LTD.
 
Citation:-2016 (339) E.L.T. 472 (Tri. - Ahmd.)
 
Brief Facts:-The brief facts that arise for consideration are that during the period on 16-12-2003 to 18-12-2003, the respondent-assessee cleared the capital goods on which they have availed the Cenvat credit. The respondent-assessee discharged the duty liability on the said capital goods based upon the value of the capital goods which was indicated on the invoices. Revenue authorities were of the view that the respondent is required to reverse the Cenvat credit availed on such capital goods as the said capital goods were removed as such. Adjudicating authority after following the due process of law, confirmed the demands raised and also imposed penalties on the respondent-assessee and also directed them to pay interest on the amount which has been confirmed. On an appeal, learned Commissioner (Appeals) has set aside the impugned order.
 
Appellant’s Contention:-The Learned SDR submits that while setting aside the impugned order, the first appellate authority has relied upon non-existing provisions of Cenvat Credit Rules, 2002 during the relevant period. It is his submission that the Cenvat Credit Rules which were substituted by Notification No. 13/2003-C.E. (N.T.), dated 1-3-2003 were specifically indicating that the assessee should pay an amount equal to the credit availed in respect of the capital goods which are removed as such. He would also submit that the Larger Bench decision in the case of Modernova Plastics Pvt. Ltd. v. CCE, Raigad - 2008 (232) E.L.T. 29 (Tri. - LB) has held that if the capital goods are removed even after dues found, the amount of the Cenvat credit taken on such capital goods to be reversed.
 
Reasoning of Judgment:-We find that the first appellate authority while setting aside the Order-in-Original has relied upon Rule 3(4) which has been cited by him in his order in Para 7 which we reproduce below :
The 7 issue involved in the instant appeal is as to whether the capital goods, cleared, duly dismantled, is to be considered as capital goods cleared as such and credit availed thereon is to be reversed or otherwise. It is observed that the appellants took Cenvat credit on capital goods in the year 1998-1999 as per the Modvat Rules prevailing at the material time. The said capital goods were removed by the appellants after using them in their factory for a period of about six years. Thus it cannot be held that the capital goods have been removed “as such” by the appellants as envisaged in terms of Rule 3(4) of the Cenvat Credit Rules, 2002. The Board in its Circular F. No. 643/34/2002-CX, dated 1-7-2002 also has clarified at Point No. 14 that with reference to capital goods the duty to be paid will be determined after allowing depreciation in terms of Circular F. No. 495/16/03-CX.VI, dated 26-5-1993. In fact Rule 3(4) of Cenvat Credit Rules, 2002 does not specify that when capital goods are cleared, duty paid should be equal to the amount of credit availed. Cenvat Credit Rules, 2002 have been amended from time to time and the last amendment was done on 15-9-2003. After this amendment Rule 3(4) read as follows :
When inputs or capital goods, on which Cenvat credit has been taken are removed as such from the factory, the manufacturer of the final product shall pay the amount equal to the duty of excise which is leviable on such goods at the rate applicable to such goods on the date of such removal and on the value determined for such goods under sub-section (2) of Section 3 or Section 4A of the Act, as the case may be, and such removal shall be made under the cover of an invoice referred to in Rule 7.”
It is seen that the first appellate authority, has incorrectly reproduced the provisions of Rule 3(4) of Cenvat Credit Rules, 2002. It was brought to our notice by the learned SDR that there was no notification dated 15-9-2003 issued in respect of Cenvat Credit Rules and the only notification issued on 15-9-2003 is Notification No. 70/2003-C.E. (N.T.) which though amended the provisions of Cenvat Credit Rules, 2002 but was in respect of 100% EOU and was also regarding the filing of returns by the manufacturer as well as the first stage and second stage dealer. We find it so.
We also find that the provisions of Rule 3(4) of Cenvat Credit Rules, 2002 as inserted by Notification No. 13/2003-C.E. (N.T.), dated 1-3-2003 reads as under :
“When inputs or capital goods, on which CENVAT credit has been taken, are removed as such from the factory, the manufacturer of the final products shall pay an amount equal to the credit availed in respect of such inputs or capital goods and such removal shall be made under the cover of an invoice referred to in Rule 7. “
We also find strong force in SDR’s submission that the issue is now decided by the Larger Bench in the case of Modernova Plastics Pvt. Ltd. (supra) respondent-assessee is required to reverse the Cenvat credit taken on capital goods. Respectfully following the same, we hold that the learned Commissioner (Appeals) order to that extent is incorrect. The demand of the duty of reversal of Cenvat credit and the interest thereof is correct. The order of first appellate authority is modified to that extent. The respondent-assessee is liable to pay interest. The lower authorities will adjust the amount paid as duty by the assessee and intimate the differential duty payable and interest thereof to assessee-respondent.
Since the issue involved in this case is regarding interpretation that the provisions of Rule 3(4) had to be settled by the Larger Bench, we do not find any reason for visiting the respondent-assessee with any penalty.
Accordingly, the impugned order to the extent which sets aside the Order-in-Original regarding the confirmation of the demand of the reversal of the Cenvat credit and the interest thereof is set aside while upholding the Order-in-Appeal which sets aside the penalty imposed on the assessee.
The appeal disposed of as indicated hereinabove.
 
Decision:-Appeal disposed of.
 
Comment:-The substance of the case is that assessee is required to reverse cenvat credit on removal of capital goods. This is according to Rule 3(4) of Cenvat Credit Rules, 2002 which states that“When inputs or capital goods, on which CENVAT credit hasbeen taken, are removed as such from the factory, the manufacturer of the final products shall pay an amount equal to the credit availed in respect of such inputs or capital goods and such removal shall be made under the cover of an invoice referred to in Rule 7.” Hence, the demand of credit reversal was confirmed but since the issue involved in this case is regardinginterpretation of the provisions of Rule 3(4) which was settled by the Larger Bench, penalty was set aside.
 
Prepared By: Mahesh Parmar
 

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