2013 (12) TMI 82 - AT - Central Excise

Larger Bench Upholds Reversal of Cenvat Credit for Capital Goods Post-Use

COMMISSIONER OF CENTRAL EXCISE Versus NAVODHAYA PLASTIC INDUSTRIES LTD

The Larger Bench, following the Madras High Court decision, upheld the reversal of Cenvat credit for each quarter of use of capital goods. The case was ... Difference of transaction value at the time of clearance and credit taken – Revenue was of the view that as per Rule 3 (5) of Cenvat Credit Rules 2004 when capital goods on which Cenvat credit had been taken were removed from the factory, the manufacturer of the final product shall pay an amount equal to the credit availed – Held that:- When capital goods are removed after use, it cannot be considered as a case of removal of goods “as such” for the purpose of reversing the entire credit taken at the time of receiving the capital goods as prescribed in Rule 3 (5) of CCR 2004 - The use of capital goods is to spread over many years - Following CCE Salem Vs Rogini Mills Ltd.[2010 (10) TMI 424 - MADRAS HIGH COURT] - A decision to the effect that assessees can bring in capital goods, use it for a few days and then remove it without reversal of any Cenvat credit taken is not consistent with the overall scheme of Cenvat credit and can lead to abuse of the scheme – Decided against Assessee. Issues Involved:1. Reference made by a Single Member Bench to a Larger Bench for deciding an issue regarding the reversal of Cenvat credit on capital goods.2. Interpretation of Rule 3(5) of Cenvat Credit Rules 2004 in the context of removal of capital goods after use.3. Discrepancies in High Court decisions regarding the quantum of credit to be reversed when capital goods are removed after use.4. Application of relevant legal provisions and circulars concerning the reversal of Cenvat credit on capital goods.Analysis:Issue 1: Reference to Larger BenchThe case involves a reference made by a Single Member Bench to a Larger Bench for deciding an issue related to the reversal of Cenvat credit on capital goods. The reference was made due to conflicting decisions of the Tribunal regarding the treatment of Cenvat credit when capital goods are removed from the factory after use.Issue 2: Interpretation of Rule 3(5) of Cenvat Credit Rules 2004The dispute revolves around the interpretation of Rule 3(5) of Cenvat Credit Rules 2004, which mandates that the manufacturer must pay an amount equal to the credit availed on capital goods when they are removed from the factory. The question arises whether depreciation aspect and proportionate reversal of credit need to be addressed by a Larger Bench.Issue 3: Discrepancies in High Court DecisionsVarious High Court decisions have provided differing views on the quantum of credit to be reversed when capital goods are removed after use. While some courts have approved the reversal based on transaction value or prescribed rates of deduction, others have held that no reversal is required if there is no specific provision for it in the Cenvat Credit Rules.Issue 4: Application of Legal Provisions and CircularsThe judgment discusses the evolution of relevant legal provisions and circulars concerning the reversal of Cenvat credit on capital goods over different time periods. It highlights the importance of preventing abuse of the Cenvat credit scheme by allowing assessees to remove capital goods without reversing any credit taken, emphasizing the need for consistency and adherence to legislative intent.In conclusion, the Larger Bench answered the reference by following the decision of the Madras High Court, which upheld the reversal of Cenvat credit for each quarter of use of the capital goods. The matter was directed to be placed before the Regular Bench of the Tribunal for further proceedings in accordance with the Larger Bench's decision. This judgment provides clarity on the treatment of Cenvat credit on capital goods removed after use, aiming to maintain the integrity of the Cenvat credit scheme and prevent potential misuse.