2012 (12) TMI 382 - AT - Central Excise

Tribunal rules in favor of appellant on Cenvat Credit Rule 3(5) case

The Tribunal ruled in favor of the appellant, finding that Rule 3(5) of the Cenvat Credit Rules, 2004 did not apply to the case concerning the payment of ... Reversal of CENVAT credit on removal as such - Rule 3(5) of the Cenvat Credit Rules, 2004 - Rule 3(4)(c) of the Cenvat Credit Rules, 2004 - removed as such - clearing capital goods after being put to useRemoved as such - Rule 3(5) of the Cenvat Credit Rules, 2004 - Rule 3(4)(c) of the Cenvat Credit Rules, 2004 - clearing capital goods after being put to use - Whether Rule 3(5) (and Rule 3(4)(c)) requires reversal of Cenvat credit where capital goods, on which credit was taken, were sold after being used for a long period - HELD THAT: - The Tribunal held that Rules 3(4)(c) and 3(5) operate only where capital goods are 'removed as such'-that is, cleared from the premises without being put to use or with minimal use intended to defeat revenue. Where capital goods have been utilised for a substantial period (the facts show use of about nine to ten years) and are thereafter sold on payment of excise duty on transaction value, such removals are not removals 'as such' attracting the obligation to pay an amount equal to the Cenvat credit. The Court relied on the reasoning in Raghav Alloys Ltd. (Punjab & Haryana High Court) which declined to follow the Larger Bench view in Modernova Plastyles (Tribunal-LB) and observed that capital goods lose their identity only after prolonged use and that reversing credit even after substantial use would defeat the object of the Cenvat scheme. The Tribunal noted the subsequent proviso to Rule 3(5) (w.e.f. 13-11-2007) and Board clarification regarding valuation after use, but on the facts concluded that the adjudicating authority correctly treated the sales as of goods used in service and that the Commissioner (Appeals) was not justified in directing reversal of credit under Rule 3(5). [Paras 7, 8]Appeal allowed; order of Commissioner (Appeals) set aside and demand and penalty confirmed by him quashed insofar as based on reversal of Cenvat credit under Rule 3(5) for capital goods sold after long use.Final Conclusion: The Tribunal accepted the adjudicating authority's finding that capital goods used for a substantial period and subsequently sold on payment of duty at transaction value are not 'removed as such' within Rule 3(5); the Commissioner (Appeals) order directing reversal of Cenvat credit was set aside and the revenue appeal dismissed. Issues:1. Interpretation of Rule 3(5) of the Cenvat Credit Rules, 2004 regarding payment of excise duty on capital goods sold after use.2. Applicability of the judgment of Punjab & Haryana High Court and Madras High Court in similar cases.3. Conflict between the judgment of the Larger Bench of the Tribunal and other Tribunal judgments on the issue.4. Determination of whether the capital goods were 'removed as such' under Rule 3(5) of the Cenvat Credit Rules.Analysis:1. The appeal concerned the interpretation of Rule 3(5) of the Cenvat Credit Rules, 2004, regarding the payment of excise duty on capital goods sold after use. The Commissioner (Appeals) held that the rule was attracted, requiring the appellant to pay duty equivalent to the Cenvat credit availed. However, the adjudicating authority had previously ruled that since the capital goods were sold after a long period of use, excise duty paid on the transaction value was sufficient, and Rule 3(5) did not apply.2. The appellant argued that the capital goods were sold after almost ten years of use, citing judgments from the Punjab & Haryana High Court and the Madras High Court, which supported their position. These judgments, along with various Tribunal decisions, emphasized that the removal of capital goods after use and payment of excise duty on transaction value did not attract Rule 3(5) of the Cenvat Credit Rules.3. The Department relied on a judgment of the Larger Bench of the Tribunal in a different case, where a contrary view was taken. The Tribunal in the present case analyzed the conflicting views and considered the specific circumstances of the capital goods being sold after a significant period of use, leading to the conclusion that Rule 3(5) did not apply in this scenario.4. The Tribunal examined the meaning of 'removed as such' under Rule 3(5) and determined that it referred to capital goods being removed without being put to use or used for a short duration to evade revenue. Since the capital goods in question were sold after almost a decade of use, they were not considered to be 'removed as such' under the rule. The Tribunal's decision aligned with the rationale provided by the Punjab & Haryana High Court judgment, emphasizing the importance of considering the actual use and depreciation of capital goods before applying Rule 3(5).In conclusion, the Tribunal found merit in the appellant's arguments supported by relevant legal precedents and set aside the Commissioner (Appeals)'s order, ruling in favor of the appellant.