Tribunal distinguishes capital goods use in cenvat credit appeal, citing Rule 3(5) proviso

The tribunal allowed the appeal, emphasizing the distinction between goods cleared without use and those cleared after utilization. The tribunal highlighted that capital goods lose their identity only when they become unserviceable after a period of use, and reversing cenvat credit after a few years of use would defeat the purpose of the scheme. The tribunal referred to the proviso added to Rule 3(5) of the Cenvat Credit Rules in 2007, which required the manufacturer to pay an amount equal to the cenvat credit taken on capital goods reduced by 2.5% for each quarter of a year from the date of taking the credit if the goods are removed after use.

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Issues involved:
1. Availment of cenvat credit on a D. G. set
2. Interpretation of Rule 3(5) of the Cenvat Credit Rules 2004
3. Discharge of duty liability on capital goods removed after usage

Analysis:

1. The appellant availed cenvat credit on a 380 KVA D. G. set valued at Rs.20,60,400, paying 50% of the total duty initially and the remaining 50% in the subsequent financial year. The department contended that as per Rule 3(5) of the Cenvat Credit Rules 2004, the appellant should have reversed the actual amount of credit availed, which was less than the required amount. A show cause notice was issued, but the adjudicating authority dropped the demand.

2. The Revenue appealed the decision, arguing that the order should be set aside. Both parties agreed that the issue was covered by a judgment of the Punjab & Haryana High Court in the case of Raghav Alloys (P) Ltd. The tribunal considered the arguments and the judgment, emphasizing the distinction between inputs and capital goods in terms of usage over time. The tribunal highlighted that capital goods lose their identity only when they become in-serviceable after a period of use, and reversing cenvat credit after a few years of use would defeat the purpose of the scheme.

3. The tribunal referred to the proviso added to Rule 3(5) of the Cenvat Credit Rules in 2007, which required the manufacturer to pay an amount equal to the cenvat credit taken on capital goods reduced by 2.5% for each quarter of a year from the date of taking the credit if the goods are removed after use. The tribunal also considered the depreciation benefit allowed for determining the value of goods cleared after being put into use. Relying on the judgment of the Punjab & Haryana High Court and other relevant precedents, the tribunal set aside the impugned order and allowed the appeal, emphasizing the distinction between goods cleared without use and those cleared after utilization.

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