Whether credit required to be reversed on capital goods removed after using for 10 years?

PJ/CASE LAW/2015-16/2936

Case:- UNITED WHITE METAL LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE, MUMBAI-V

Citation:-2015 (326) E.L.T. 202 (Tri. - Mumbai)

Brief Facts:- The appellant, M/s. United White Metal Ltd., is a manufacturer of parts of lifts/escalators. The appellant purchased the manufacturing facility including the plant and machinery from M/s. OTIS Elevator Co. (I) Ltd. in the year 2003. After using the plant and machinery acquired for manufacturing, the appellant vide their letter dated 31-5-2007 informed the Range Superintendent that they have closed their manufacturing operations with effect from 6-1-2007 and they intended to remove their useable and un-useable materials, finished goods, scrap, etc. on payment of required excise duty. It was also informed that they were in the process of selling of their plant and machinery and other fixed assets, as the appellant had not claimed the Cenvat credit on the capital goods at the time of acquisition from OTIS Elevator Co. (I) Ltd., they would sell these equipment/machines on their normal commercial invoice, without charging/reversing any excise duty thereon. List of equipment/machines, which the appellant intended to sell, was also enclosed. Pursuant thereto the appellant removed the capital goods/machines during the period June, 2007 to August, 2007.
A show cause notice dated 4-7-2008 was issued taking notice of the fact that the machines disposed of were acquired originally by the OTIS on 30-11-1995/31-3-1997/27-10-1997. It appears to Revenue that OTIS had availed Modvat credit on the capital goods and such goods were sold/transferred to the appellant in the year 2003 along with all the assets and liabilities. It also appears that no Modvat/Cenvat credit in respect of said capital goods were reversed by OTIS at the time of sale/transfer of the capital goods to the appellants as the said capital goods were not removed out of the factory premises. It further appeared to the Revenue that on the capital goods, the appellant is required to pay appropriate Central Excise duty on their transaction value as envisaged in the CBEC Circular No. 643/34/2002, dated 1-7-2002. Accordingly, the appellant was required to show cause as to why excise duty amounting to Rs. 5,37,248/-, including cess payable, on the transaction value of the capital goods, at the time of clearance from the factory premises should not be demanded and recovered and further penalties were proposed under Rule 25 of the Central Excise Rules, 2002. The appellant contested the show cause notice and the same was adjudicated by order-in-original dated 9-3-2009 confirming the show cause notice along with interest and penalty of Rs. 50,000/- imposed under Rule 25 of the CER, 2002. Being aggrieved by the order, the appellant preferred an appeal before the Commissioner (Appeals), who vide impugned order upheld the levy on the transaction value relying on the decision in the case of CCE, Chandigarhv. Raghav Alloys (P) Ltd., reported in 2009 (242) E.L.T. 124 (Tri.-Del.) and 2011 (268)E.L.T.161 (P&H) = 2012 (26)S.T.R.87 (P&H). Being aggrieved by the order, the appellant is before this Tribunal.

Appellant contentions:-The learned Counsel for the appellant pointed out that there have been a change in the legal provisions/Rules with regard to the removal of capital goods. Prior to 1-3-2003 Rule 3 (4) of Cenvat Credit Rules, 2001 provided - 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 duty of excise which is leviable on such goods at the rates applicable to such goods on the date of removal and on the value determined of such goods (transaction value) and such removal shall made under the cover of an invoice. The statute was amended and substituted by Cenvat Credit Rule, 2002 with effect from 1-3-2003 and the amended Rule 3(4) provided - when inputs or capital goods, on which the Cenvat credit has been taken, are removed as such from the factory, the manufacture 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. In the succeeding Cenvat Credit Rules, 2004, the provision remains as such. Subsequently, the provision was amended, proviso was inserted with effect from 30-11-2007 providing that - if the capital goods on which separate credit has been taken is removed after being used, the manufacturer or the provider of output service shall pay an amount equivalent to the Cenvat credit taken on the said capital goods, reduced by 2.5% for each quarter of a year or part thereof from the date of taking the Cenvat credit. It is contended by the learned Counsel for the appellant that admittedly the machines were acquired sometime in the year 1995-96 which is an admitted fact in the show cause notice. Further 2.5% per quarter works out to 10% per year and as 10 years or more have crossed since the date of acquisition, it will amount to 100% allowance of the Cenvat credit under the proviso to Rule 3(5) of the Cenvat Credit Rules, 2004. It is further contended that the proviso being by way of clarification, will apply and accordingly, the revenue is not justified in demanding any duty based on the transaction value. The learned Counsel further relies on the decision of the Hon’ble Delhi High Court in the case of Harsh International (Khaini) Pvt. Ltd. v. CCE - 2012 (281) E.L.T. 714 (Del.) wherein the Hon’ble High Court in the case of machinery transferred during June-July, 2007, after use of two to four years held that - no Cenvat credit is required to be reversed on transfer of such used capital goods. The learned Counsel further states that in the case of Cummins India Ltd.v. CCE - 2007 (219)E.L.T.911 (Tri.-Mumbai),this Tribunal on the fact that where capital goods were cleared after a period of use (about 7 to 8 years in March, 2003) and on payment of duty on the transaction value, had upheld the payment of duty by the assessee, holding that the revenue has not justified in demanding the reversal of the Cenvat credit as originally taken, at the time of acquisition. The said order of the Tribunal was affirmed by the Hon’ble Bombay High Court in Central Excise Appeal No. 232 of 2007, vide order dated 22-7-2008 [2009 (234) E.L.T. A120 (Bom.)].

Respondent contention:-Learned DR relies on the impugned order.

Reasoning of Judgment:-Having considered the rival contention, it was found that the Rule 3(5) of the Cenvat Credit Rules, 2004 provides for the reversal of Cenvat credit only when the goods are removed “as such”. In the facts of the case as admitted, the goods have been used for about 10 years. Thus, the goods are not removed “as such”, no credit is required to be reversed. Further, in the second proviso to Rule 3(5), wherein it was provided that 2.5% allowance of the credit taken, is to be given for each quarter of use. Under the facts and circumstances, the appellant is held to be entitled to 100% rebate on this count also. Accordingly, the appeal is allowed with consequential relief, if any, in accordance with law.

Decision:- Appeal allowed.

Comment:-The substance of the case is that during the material period, cenvat credit was required to be reversed only in the case of goods is removed “as such”. The provision regarding reversal of credit on clearance of used capital goods was introduced later on. Even otherwise, 2.5% per quarter works out to 10% per year and as 10 years or more have crossed since the date of acquisition, it will amount to 100% allowance of the Cenvat credit under the proviso to Rule 3(5) of the Cenvat Credit Rules, 2004.Accordingly, appellant is held to be entitled to 100% rebate and is not required to reverse any cenvat credit.

Prepared By:- Anash Kachaliya

Comments

PJ/CASE LAW/2015-16/2936

Post a Comment

Query