2011 (4) TMI 837 - AT - Central Excise

Tribunal Upholds Clearance of Capital Goods & Show Cause Notice Validity

The Tribunal rejected the Revenue's appeal and upheld the Commissioner (Appeals) decision, affirming the proper clearance of used capital goods and the ... Reversal of cenvat credit on removal of capital goods 'as such' - interpretation of the expression 'as such' in relation to used capital goods - applicability of depreciation allowance on removal of used capital goods - limitation-knowledge of department from returns and maintainability of demandReversal of cenvat credit on removal of capital goods 'as such' - interpretation of the expression 'as such' in relation to used capital goods - applicability of depreciation allowance on removal of used capital goods - Whether Rule 3(5) required reversal of entire cenvat credit when used capital goods were cleared after being put to use and duty paid on depreciated value. - HELD THAT: - The Tribunal accepted the Commissioner (Appeals) finding that Rule 3(5) provides for reversal of cenvat credit when inputs and capital goods are removed 'as such' and that the plain meaning of 'as such' is removal in original form without having been put to use. The adjudicating authorities and Tribunal decisions relied upon (including Cummins India Ltd., Raghav Alloys and Trinity Auto Components) establish that where capital goods have been put to use, the obligation to reverse the entire credit under Rule 3(5) does not arise. There were no specific provisions during the period in question mandating reversal in respect of capital goods cleared after being used for several years; contemporaneous Circulars permitting depreciation on used capital goods (Circular No.643/34/2002-CX and related guidance) supported allowing reduction of duty by depreciation. The Tribunal distinguished the Larger Bench decision relied upon by Revenue (Modernova Plastyles) as addressing a different rule and held that the interpretation requiring full reversal would lead to absurd results inconsistent with the purpose of the cenvat/modvat scheme. Applying these principles to the facts-used kilns cleared after being put to use and duty paid on depreciated value-the Tribunal concluded Rule 3(5) full-reversal was not applicable and the assessee's clearance on depreciated value was proper. [Paras 7, 8]Reversal of entire cenvat credit under Rule 3(5) was not applicable to the used kilns cleared after use; payment of duty on depreciated value was proper.Limitation/knowledge of department and maintainability of demand - Whether the show cause notice and demand were barred by limitation or otherwise not sustainable because the department had knowledge of the facts from returns and duty payment. - HELD THAT: - The Tribunal noted that the department was aware of the removal and the duty paid, as reflected in correspondence and excise returns. Given that the factual basis for the demand was within the department's knowledge, the Tribunal found the demand unsustainable on limitation grounds. This factual finding on knowledge and disclosure in returns supported rejection of the Revenue's appeal on limitation. [Paras 9]Demand was not sustainable on limitation grounds because the department had knowledge of the facts from returns and duty payment.Final Conclusion: Revenue's appeal is rejected; the Commissioner (Appeals) order setting aside the original order is upheld and the clearance of the used kilns on payment of duty after allowing depreciation is sustained, the demand being also unsustainable on limitation grounds. Issues:1. Proper clearance of capital goods after use2. Validity of show cause noticeAnalysis:Issue 1: Proper clearance of capital goods after useThe case involved an appeal by the CCE Rajkot against the order of the Commissioner (Appeals) in the matter of a company manufacturing ceramic glazed tiles. The company imported two kilns and took credit during 2003-04 and 2004-05. The company cleared these kilns and paid duty on the depreciated value. The Revenue contended that the company should pay the differential amount as per Rule 3(5) of the Cenvat Credit Rules. The Tribunal referred to the Larger Bench judgment in M/s. Modernova Plastyles Pvt. Ltd. case, clarifying the term 'as such' to include both new and used capital goods. However, the Tribunal held that the provision for reversal of cenvat credit applies only when capital goods are removed without being put to use. The Tribunal cited precedents like M/s. Cummins India Ltd. case to support its decision. The Tribunal concluded that the clearance of used capital goods paying duty on the depreciated value was proper.Issue 2: Validity of show cause noticeThe Revenue raised concerns regarding the removal of capital goods in January 2007 after several years of use and the applicability of the show cause notice within limitations. The assessee argued that they cleared the goods correctly under Circulars and Notifications in force at the time. The Tribunal found that the Revenue's appeal was not sustainable on the grounds of limitation as the department was aware of the clearance and duty payment. The Tribunal upheld the order of the Commissioner (Appeals) in favor of the assessee.In conclusion, the Tribunal rejected the Revenue's appeal and upheld the decision of the Commissioner (Appeals) regarding the proper clearance of used capital goods and the validity of the show cause notice.