Whether ‘capital goods cleared as such’ includes capital goods cleared as such after being used in terms of Rule 3 (4) of the Cenvat Credit Rules, 2004

PJ/Case Laws/2011-12/1210

Case:- Commissioner of C. Ex. Chandigarh versus Raghav Alloys Ltd.

Citation:- 2011(268) E.L.T 161(P&H)

Issue: -Whether ‘capital goods cleared as such’ includes capital goods cleared as such after being used in terms of Rule 3 (4) of the Cenvat Credit Rules, 2004?

Brief Facts: - Respondent-assessee is engaged in the manufacture Non-Alloy Steel Ingots. In the year 1994, they purchased an Induction Furnace and took credit of Rs 1.30 lakh equal to duty paid on the said Induction Furnace. They have used the said machine till 2003 and sold the same in May 2003 after payment of duty of Rs 32000/- i.e. 16% on the sale price of Rs. 2, 00,000/-. Respondent paid duty on the transaction.

Revenue formed opinion that Respondent should pay duty equal to the Cenvat credit availed at the time of purchase of the machinery. Accordingly, show cause notice was issued to the respondent raising demand of differential amount of credit i.e. Rs. 98000/-. Revenue also sought to impose penalty. The Adjudicating Authority confirmed the demand and further imposed an equal amount of duty under Section 11AC r/w Rule 13 of the Rules.

Respondent preferred an appeal before the Commissioner (Appeals). The Commissioner (Appeals) relying upon the Board Circular dated 1-7-2002 allowed the appeal. Revenue preferred an appeal before the Tribunal. The Tribunal ex-parte allowed appeal of the Revenue reported at [2008(224) E.L.T. 595 (Tri-Del)].

Respondent therefore approached the High Court. The High Court set aside the ex-parte order and remanded the matter to the Tribunal to decide the appeal afresh after hearing the Respondent.

The Tribunal vide its Final Order dated 23-4-2009 reported at [2009(242) E.L.T. 124(Tribunal)] dismissed the appeal of Revenue holding that the respondent has paid the correct amount of duty. The Tribunal had relied upon the judgment given in the case of Cummins India Limited v/s CCE, Pune-III [2007 (219) ELT 911 (Tri-Mumbai)] which is upheld by Bombay High Court [2009 (234) ELT A120 (Bom). Reliance was also placed on CCE, Ludhiana v/s Nahar Fibres [2007 (220) ELT 855].

Hence, Revenue is in appeal before the High Court.

Appellant’s Contention: -Revenue contended that the Tribunal has wrongly distinguished decision of the Larger Bench of the Tribunal in the case of Modernova Plastyles Private Limited VS CCE, Raigad [2008 (232) ELT 29 (Tri.-LB)] wherein the Tribunal has held that the expression as such has to be interpreted as commonly understood, which is in “original form” and “without any additional alteration or modification”.

Respondent’s Contention: -Respondent contended that in Para 3 of the judgment of the Larger Bench of the Tribunal in Modernova Plastyles Private Limited, it has been noted that the decision of the Tribunal in the case of Cummins India Limited, which has been upheld by Bombay High Court deals with the provision of Rule 3(4) (c) and does not consider the provision of Rule 4 (5) (a). It was submitted that the Larger Bench of Tribunal has considered the provision of Rule 4 (5) (a) and not Rule 3(4) (c) whereas the present case is with respect to Rule 3(4) of the Rules. So the case of the respondent is scarcely covered with the earlier decision of the Tribunal, which has been upheld by the Bombay High Court.

Reasoning of the Judgment:-The High Court held that the Tribunal has rightly noted that unlike inputs, which get consumed 100% with the same are taken up for use in relation to manufacture of finished goods, capital goods are used over a period of time. The capital goods loose their identity as capital goods only when after use over a period of time, the same has become in-serviceable and fit to be scrapped. The object of the Cenvat credit on capital goods is to avoid the cascading effect of the duty. If even after being used for a couple of years, the Cenvat credit is required to be reversed then it would certainly defeat the object of the Scheme. To avoid misuse of the scheme in the Rules, it has been provided that if the machine is cleared as such the assessee shall be liable to pay duty equal to the amount Cenvat Credit availed. The machines which are cleared after being utilized cannot be treated as machines cleared ‘as such’. With effect from 13-11-2007, a provision has been added to Rule 3(5) of the Cenvat Credit Rules providing that the Capital goods on which Cenvat Credit has taken are removed after being used, the manufacture shall pay the amount equal to Cenvat Credit taken on the said capital goods reduced by 2.5% of each quarter of year or part thereof from the date of taking the Cenvat credit. The Board has also in the Circular dated 1-7-2002 clarified that in the case of clearance of goods after being put to use, the value shall be determined after allowing the benefit to depreciation as per rate fixed in Board letter dated 26-5-1993. The machine cleared after being put to use for nine year cannot be treated as cleared ‘as such’. Insertion of proviso w.e.f. 13-11-2007 makes it clear that there is difference between machines cleared without putting into use and cleared after use. The Bombay High Court has upheld the view of the Tribunal in case of Cummins India Limited V. CCE, Pune-III, 2007(219) E.L.T. 911(Tri-Mumbai). The Tribunal in the case of Nahar Fibers has also dismissed the appeal of Revenue and there is nothing to show that the said decision of the Tribunal has been set aside by any court. No merit in appeal. Question answered in favour of Assessee and against the Revenue.

Judgment: -Appeal dismissed.
Comment:- this will settle the controversy on this issue. Earlier when the depreciation norms were deleted in new Cenvat credit Rules then the tribunal has decided that there is no need to pay duty on used capital goods. But later on, it was decided that complete cenvat credit is to be reversed. But now the correct verdict has come. Moreover, there is no dispute after 13.11.2007.

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PJ/Case Laws/2011-12/1210

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