Appeal allowed for Cenvat credit on transformer oil used in manufacturing activities.

The appeal was allowed as the appellants were found to have correctly availed Cenvat credit on transformer oil used in manufacturing and repairing activities within the factory premises, without removal of goods. The demand of duty based on the transaction value of the oil was deemed unsustainable as Rule 3(4) did not apply in this scenario. The impugned order was set aside, and the appeal was allowed with consequential relief.

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Issues:
1. Availing Cenvat credit on transformer oil used in manufacturing and repairing activities.
2. Demand of duty based on transaction value of transformer oil.
3. Applicability of Rule 3(4) of Cenvat Credit Rules, 2001.
4. Reversal of credit under Rule 6 of Cenvat Credit Rules, 2001.
5. Removal of goods from the factory.

Analysis:
1. The appellants were engaged in manufacturing electrical transformers and parts while also repairing old and damaged transformers. They availed Cenvat credit on transformer oil used in both manufacturing and repairing activities. A show cause notice was issued proposing a duty demand for a specific period.

2. The issue arose regarding the demand of duty based on the transaction value of transformer oil. The authorities alleged that the appellants needed to reverse the Cenvat credit on transformer oil as per the transaction value paid by UPSEB, invoking Rule 3(4) of the Cenvat Credit Rules, 2001.

3. The learned Advocate for the appellants argued that they reversed the credit under Rule 6 of the Cenvat Credit Rules, 2001. He contended that Rule 3(4) would not apply as there was no removal of goods from the factory. He also claimed that there was no suppression of facts and the extended period of limitation should not apply.

4. The learned D.R. supported the findings of the Commissioner (Appeals) stating that the duty paid inputs were removed for repairing transformers, thus Rule 3(4) applied. It was argued that the appellants should reverse the credit based on the transaction value of UPSEB. The contention was made that the reversal of credit at different rates was unacceptable.

5. Upon perusal of the records, it was found that the appellants had reversed the credit on the quantity of transformer oil used in repairing old transformers without removing the oil from the factory. As per Rule 3(4), when inputs are removed from the factory, duty is leviable, but since the oil was used within the factory for repairs, Rule 3(4) could not be invoked. Consequently, the demand of duty based on the transaction value of UPSEB was deemed unsustainable, leading to the setting aside of the impugned order and allowing the appeal with consequential relief.

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