2014 (3) TMI 91 - AT - Central Excise

Tribunal upholds decision on duty payment for obsolete inputs in vehicle manufacturing

The Tribunal upheld the Commissioner's decision to drop the show-cause notice initiated by the Revenue against a manufacturer of motor vehicles and parts. ... Goods cleared 'as such' - Inputs were written off as obsolete in the books of accounts and they cleared after paying duty on these goods on transaction value - Commissioner dropped SCN - Held that:- Inputs were reduced to the value of 5%/10% of the actual value but not less than 5% actual value at the time of writing off in the books of accounts which shows that the inputs were not absolutely held obsolete. Therefore, the provisions of paragraph 3(iii) of Circular dated 16.7.2002 is not applicable as the same is applicable for inputs which has been written off for fully. - para 3.2 of the Circular dated 16.07.2002 is relevant to the facts of this case and I also find that this facts were in the knowledge of the department that the inputs which has been written off in the books of accounts by the respondents are to be treated as auction sale and on this auction sale amount, they are paying duty. Therefore, as per the Circular dated 16.07.2002, they have discharged the duty liability and the same has been considered by the learned Commissioner in the impugned order - Therefore, the learned Commissioner, rightly dropped the show-cause notice - Decided against Revenue. Issues:- Appeal against dropping of proceedings initiated in a show-cause notice by the Commissioner.- Interpretation of Circular No. 645/36/2002-CX regarding reversal of CENVAT credit on written-off capital goods.- Bar on initiating new proceedings for the same period against the same assessee.- Applicability of Circular dated 16.07.2002 on the facts of the case.- Calculation of duty demanded based on the actual value of inputs.- Limitation on raising demands equivalent to credit taken before the insertion of Rule 5B of CER 2004.Analysis:1. The Revenue appealed against the dropping of proceedings initiated in a show-cause notice by the Commissioner. The case involved a manufacturer of motor vehicles and parts who cleared certain obsolete inputs after paying duty on the transaction value. The Revenue contended that duty equivalent to the credit taken on these inputs should be paid as they were cleared 'as such.' The Commissioner dropped the show-cause notice, leading to the Revenue's appeal.2. The learned A.R. referred to Circular No. 645/36/2002-CX, emphasizing the need to reverse CENVAT credit on written-off capital goods. On the other hand, the Advocate argued that the proceedings were not sustainable due to a previous dropped show-cause notice for the same period against the same assessee. The Advocate also highlighted the procedure for disposal of obsolete inputs, stating that the duty was payable on the transaction value, and the show-cause notice issued in 2003 was barred by limitation.3. The Tribunal considered the submissions and records. It noted that the inputs were reduced to a certain percentage of the actual value but not fully written off, indicating they were not entirely obsolete. The Tribunal found that the Circular dated 16.07.2002 applied to the case, as the inputs were treated as auction sale with duty paid accordingly. The Tribunal upheld the Commissioner's decision to drop the show-cause notice, stating that the Revenue's appeal lacked merit.4. The judgment focused on the interpretation of the Circular, the bar on initiating new proceedings, the calculation of duty based on actual input value, and the limitation on raising demands equivalent to credit taken. The Tribunal's detailed analysis considered the facts of the case, the Circular's applicability, and the Revenue's arguments, ultimately upholding the Commissioner's decision and dismissing the Revenue's appeal.