Capital goods sale post-use doesn't demand full credit reversal under Cenvat Credit Rules

The appeal was allowed by the Member (J) following the judgment of the Hon'ble High Court of Punjab & Haryana in a similar case. The appellant's refund claim on Cenvat Credit for a forklift sold after use was upheld, rejecting the Revenue's argument for complete reversal of the credit. The judgment clarified that capital goods sold after utilization do not require full reversal of credit under Rule 3(5) of Cenvat Credit Rules, 2004. The decision emphasized the distinction between goods cleared without use and those cleared after being in service, providing relief to the appellant in accordance with established legal principles.

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Issues:
Refund claim on Cenvat Credit for forklift sold after use.

Analysis:
The appeal was filed against the Order-in-Appeal NO. AGS(32)11/2010 dated 15.02.2010. The issue revolved around a refund claim on Cenvat Credit for a forklift that was sold after being used in the factory premises. The appellant had purchased the forklift and availed Cenvat Credit, later selling it on discharging central excise duty. The department contended that the appellant should have paid an amount equal to the credit taken, leading to the reversal of differential excise duty and interest under protest. The lower authorities rejected the refund claim citing Rule 3(5) of Cenvat Credit Rules, 2004, which mandates reversal of Cenvat Credit on removal of capital goods. However, the Member (J) found that the forklift was removed after use, and the Revenue's argument for complete reversal of Cenvat Credit was incorrect.

The Member (J) referred to the judgment of the Hon'ble High Court of Punjab & Haryana in the case of Raghav Alloys Ltd. The court highlighted the distinction between inputs and capital goods, emphasizing that capital goods lose their identity only when they become in-serviceable after a period of use. The purpose of Cenvat Credit on capital goods is to prevent duty cascading, and requiring reversal of credit even after years of use would defeat this purpose. The addition of a proviso to Rule 3(5) clarified that if capital goods are removed after use, the manufacturer must pay the Cenvat Credit amount reduced by a specified percentage for each quarter of use. The judgment established that there is a difference between goods cleared without use and cleared after utilization, supporting the appellant's position.

Based on the authoritative judicial pronouncement and precedents cited, the Member (J) set aside the impugned order and allowed the appeal with consequential relief. The judgment reaffirmed that the issue of refund claim on Cenvat Credit for capital goods sold after use is settled in favor of the appellant, aligning with the legal principles established by the Hon'ble High Court and previous tribunal decisions.

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