2007 (3) TMI 589 - AT - Central Excise

Tribunal rules on credit reversal for capital goods, emphasizing purpose of tax rules

CUMMINS INDIA LTD. Versus COMMISSIONER OF C. EX., PUNE-III

CUMMINS INDIA LTD. Versus COMMISSIONER OF C. EX., PUNE-III - 2007 (219) E.L.T. 911 (Tri. - Mumbai) Issues involved: The issue in this case revolves around whether the appellants were required to pay duty at the assessable value of the capital goods or reverse the quantum of credit originally availed by them under Rule 3(4) of Cenvat Credit Rules, 2002, when the capital goods were cleared as old, used, and scrapped machines after being in use for several years.Summary:Issue 1 - Duty Payment vs. Reversal of Credit:The appellants, engaged in manufacturing I.C. Engines, had taken Modvat credit for capital goods in 1996, which were later cleared as old and scrapped in 2003. The dispute centered on whether duty should be paid on the assessable value of the goods or if the original credit availed should be reversed. Both lower authorities mandated the reversal of the credit under Rule 3(4) of the Cenvat Credit Rules, 2002.Decision:Upon review, it was found that the rules require credit reversal for goods removed 'as such,' meaning without use. However, the capital goods in this case had been utilized for over 7 to 8 years before being cleared. Requiring credit reversal in such instances would defeat the purpose of Modvat credit for capital goods and go against legislative intent. Citing a similar precedent, the Tribunal ruled in favor of the appellants, setting aside the differential amount and allowing the appeal with consequential relief.This judgment highlights the importance of interpreting tax rules in a manner that aligns with legislative intent and the practical application of credit facilities for businesses.