2011 (4) TMI 344 - AT - Central Excise

Tribunal upholds reversal of Cenvat credit on capital goods transfer for exempted goods

The Tribunal dismissed the appeal, upholding the demand for reversal of Cenvat credit when transferring capital goods between factories manufacturing ... Applicability - Provisions of Rule 3(5) or under provisions of Rule 10(3) - Appellant at the time of shifting their factory they had transferred capital goods on which Cenvat credit was taken - The Appellant did not clear the capital goods under provisions of Rule 3(5) of Cenvat Credit Rules, 2004 by reversing applicable Cenvat credit - The Appellants have been contesting that they are entitled to transfer the capital goods from their factory at Faridabad to their factory at Roorkee under provisions of Rule 10(3) of Cenvat Credit Rules, 2004 - Held that:- no transfer of credit is possible at all because the factory at Roorkee was not operating under Cenvat Scheme - That being the case provisions of Rule 10(3) cannot be applied in this case - This Rule cannot be read as a provision enabling removal of capital goods from one factory of a manufacturer to another factory of the manufacturer - Therefore the correct rule applicable was Rule 3(5). Issues:1. Interpretation of Rule 10(3) of Cenvat Credit Rules, 2004 regarding transfer of capital goods during factory shifting.2. Application of Rule 3(5) of Cenvat Credit Rules, 2004 in case of transferring capital goods between factories manufacturing exempted goods.Analysis:1. The Appellant shifted their factory from one location to another and transferred capital goods without reversing the Cenvat credit. The contention was that the transfer falls under Rule 10(3) of Cenvat Credit Rules, allowing such transfers during factory shifting. The Commissioner (Appeals) upheld the demand for reversal of credit but set aside the penalty under Section 11AC, considering the transfer was intimated to the department and not for evading duty.2. The Appellant argued that their case aligns with Rule 10(3) as they were not selling the goods but shifting them due to factory relocation. The key argument was that since the goods in the new factory were exempt from duty, there was no need to transfer credit. The Departmental Representative contended that Rule 10(3) does not cover capital goods transfer and Rule 3(5) should apply in this scenario.3. Rule 10 of Cenvat Credit Rules allows for the transfer of credit during factory shifts, mergers, or sales. However, the crux of the issue was the applicability of Rule 10(3) in transferring capital goods when no credit was unutilized due to the new factory's exemption from Excise duty. The Tribunal noted that the cited case laws did not address the specific situation of transferring machines to a factory producing only exempted goods, leading to the rejection of the appeal.4. The Tribunal emphasized that Rule 10(3) cannot be interpreted as enabling the removal of capital goods between factories of the same manufacturer. Since the new factory was not operating under the Cenvat Scheme, the transfer of credit was not feasible, making Rule 3(5) applicable for the removal of capital goods. Consequently, the appeal was dismissed based on the inapplicability of Rule 10(3) and the absence of relevant precedents supporting the Appellant's position.