2010 (10) TMI 424 - HC - Central Excise

Interpretation of 'as such' in Cenvat Credit Rules clarified, assessee can reverse credit based on subsequent sale value.

COMMISSIONER OF C. EX., SALEM Versus ROGINI MILLS LTD.

The High Court of Madras clarified the interpretation of the expression 'as such' in Rule 3(4)(c) of the Cenvat Credit Rules, 2002, allowing the assessee ... Cenvat credit - Capital goods - Capital goods are removed after use - The capital goods on which Cenvat credit had been taken or removed after being used, the Manufacturer should pay an amount equal 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 - The Board’s Circular dated 1-7-2002 stated that the capital goods on which Cenvat credit had been taken or cleared under Rule 3(4), the Manufacturer would be required to pay an amount equal to the duty at the rate prevailing on the date of clearance and on the value determined under the provisions of Section 4 of the Central Excise Act and the depreciation as per the rates fixed in the Board’s Letter dated 26-5-1993 should be allowed - Hence, the order of the Tribunal in remanding back to the original authority for re-determination of the amount after allowing depreciation - The appeal fails and the same is dismissed. Issues:1. Interpretation of the expression 'as such' in Rule 3(4)(c) of the Cenvat Credit Rules, 2002.2. Requirement to reverse credit when used capital goods are removed from the factory.Issue 1: Interpretation of the expression 'as such' in Rule 3(4)(c) of the Cenvat Credit Rules, 2002:The case involved the appellant, the Commissioner of Central Excise, questioning the interpretation of the term 'as such' in Rule 3(4)(c) of the Cenvat Credit Rules, 2002. The appellant contended that the expression should only refer to the value at the time of initial procurement and not allow for a depreciated value for substantially used and disposed of capital goods. However, the Court disagreed with this interpretation. The Court referenced a Board's Circular and a provision added to Rule 3(5) of the 2004 Rules, which indicated that when capital goods are disposed of after being used, the manufacturer should pay an amount equal to the Cenvat credit taken, reduced by a specified percentage for each quarter of a year from the date of taking the credit. The Court concluded that the assessee is entitled to reverse the Cenvat credit availed based on the value assessed at the subsequent sale of the capital goods. The Court upheld the Tribunal's decision, which aligned with this interpretation.Issue 2: Requirement to reverse credit when used capital goods are removed from the factory:The case also addressed the issue of whether the assessee is required to reverse credit equivalent to the credit taken when used capital goods are removed from the factory. The Court, after examining the relevant provisions and circulars, determined that when inputs or capital goods are disposed of after being used over time, the assessee should reverse the Cenvat credit availed based on the value assessed at the subsequent sale of the capital goods. The Court found that the Tribunal's decision to remand the matter back to the original authority for re-determination of the demand amount after allowing depreciation was justified. Consequently, the Court dismissed the appeal and upheld the Tribunal's decision, emphasizing that the questions of law raised had already been correctly addressed by the Tribunal.In conclusion, the High Court of Madras clarified the interpretation of the expression 'as such' in Rule 3(4)(c) of the Cenvat Credit Rules, 2002, and affirmed the requirement for the assessee to reverse credit when used capital goods are removed from the factory based on the subsequent sale value. The Court's decision aligned with the provisions of the Rules and relevant circulars, upholding the Tribunal's decision and dismissing the appeal brought by the Commissioner of Central Excise.