Reversal of credit required on clearance of Capital Goods from factory

PJ/Case Laws/2012-13/1075

Case: M/s GENERAL MOTORS INDIA (P) LTD Vs CCE, VADODARA

Citation: 2009-TIOL-849-CESTAT-AHM

Issue:- Transfer of Capital goods to Ancillary unit without reversal of credit taken on the same – held, credit is required to be reversed but penalty set aside.

Brief Facts:- Appellant is engaged in the manufacture of Automobile and its components falling under Chapter 87 of First Schedule to the Central Excise Tariff Act, 1985. They were availing benefit of modvat credit in respect of various capital goods used in the manufacture of their final products. The appellant have their ancillary units, who manufactured various components of Automobile and supplied the same to the appellant on payment of duty. The appellant removed some of the capital goods, on which they had availed the credit, to their ancillary unit, without payment of duty.

Demand was raised for reversing the Cenvat Credit with interest and penalty was also imposed. Matter is now before the Tribunal.

Appellant’s Contention:- Appellant submitted that the mistake occurred on account of the bonafide on their part inasmuch as they were clearing the other capital goods also which were to be returned within a period of 180 days, the duty paid by them was available as credit to the recipient of the capital goods and as such the entire situation was revenue neutral. As soon as the above was pointed out to them, they paid the entire duty along with the interest and as such no penalty should have been imposed on them.

Appellant have relied upon Tribunal's decision in the case of M/s. Modernova Plastyles Pvt. Ltd. 12008 (232) ELT 29 (Tn. LB).7= 2008-TIOL-1771-CESTATMUM-LB) and in the case of M/s. Indo-Nippon Chemicals Co. Ltd. 12009 (233) ELT 141 (Tn. Ahmd.)].

They submit that there being no malafide on their part and the fact of non-reversal of credit was not with any ulterior motive or by fraudulent means and such credit being reversed by them immediately along with interest, imposition of penalty is not justified.

Reasoning of Judgment:- The Tribunal held that in terms of the provisions of Rule 4(5)(a) of the CENVAT Credit Rules, 2002, the capital goods could be cleared to the job worker for manufacture of goods, provided the same have received back within a period of 180 days. However as the goods cleared by the factory were machines, the appellant was required to clear the same on payment of duty and the job worker was entitled to avail the benefit of credit of duty so paid. The non-returnable invoices raised by the appellant also revealed that the said capital goods were not required to be returned within a period of 180 days and were to remain with the job worker to whom it was cleared till December, 2013. Accordingly the appellants were required to reverse the cenvat credit.

It was held that the judgments cited by the appellant were fully applicable in the present case. Duty demand was confirmed but penalty demand is set aside.

Decision:- Appeal disposed of accordingly.

Comment:- The cenvat credit needs to be reversed on removal of capital goods. If they are put to use, then depreciation is allowed. But the credit is to be reversed on such depreciated value.

But now a new provision has been inserted from this Budget. The reversal amount is to be calculated either on duty calculated at sale price of capital goods or the duty on depreciated value, which ever is higher.

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PJ/Case Laws/2012-13/1075

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