2011 (3) TMI 897 - AT - Central Excise

Tribunal rules in favor of taxpayer on Cenvat credit dispute

The Tribunal allowed the appeal in a case involving the availment of Cenvat credit on capital goods and the reversal of credit on re-entry and subsequent ... Demand - Re-entry of Capital goods - The argument that sale of the final sale of the goods should be related to the re-entry of the machines on 28-03-2006 is not consistent with common sense - The re-entry of the machine on 28-03-2006 is to be related to the initial aborted sale made on 28-02-2006 - The final disposal of the machine is to be related to the initial entries of these machines into the factory on 3-12-2004 and 17-02-2005 - So the machines were cleared after use in the factory for more than one year and the principles laid down in the case of Cummins India Pvt. Ltd. will apply - Therefore the duty amount of rs. 4,89,600/- paid on the final sale of the goods for a value of Rs. 30,00,000/- is proper and the demands made in the impugned orders is not sustainable. Issues:1. Availment of Cenvat credit on capital goods.2. Reversal of credit on re-entry and subsequent sale of machines.3. Interpretation of Rule 3(5) of the Cenvat Credit Rules.Analysis:1. The Appellant, a manufacturer of mopeds and motor vehicle parts, purchased two machines as capital goods and availed Cenvat credit. After using the machines for over a year, they sold the machines to another party, paid duty, and later re-entered the machines in their factory, claiming credit again. The Tribunal noted no dispute on these transactions.2. Subsequently, the machines were re-sold at a lower price, and duty was paid on the revised value, which was contested by the revenue authority. A Show Cause Notice was issued, demanding differential duty, which was confirmed along with interest and a penalty. The Appellant challenged this before the Tribunal.3. The dispute centered on the interpretation of Rule 3(5) of the Cenvat Credit Rules, which requires payment equal to the credit availed when capital goods are removed from the factory. The Appellant argued that this rule applies only when goods are removed without use in the factory, contending that since the machines were used before re-sale, no credit reversal was necessary. The department argued that credit taken on re-entry should be reversed upon final sale.4. The Tribunal analyzed the arguments and found that the re-entry of the machines should be linked to the initial aborted sale, not the final sale. As the machines were used in the factory for over a year, the principles established in previous cases were deemed applicable. Consequently, the duty paid on the final sale at a reduced price was considered proper, and the demands made by the revenue authority were deemed unsustainable.5. Therefore, the Tribunal allowed the appeal, providing relief to the party involved.