2017 (1) TMI 161 - AT - Central Excise

Clarification on Cenvat Credit Rules: Capital goods vs. worn-out parts

M/s. Prakash Cotton Mills Private Ltd. Versus Commissioner of Central Excise, Mumbai-IV

The appeal was allowed in favor of the appellant as the Member (Judicial) clarified that Rule 3(4) of the Cenvat Credit Rules, 2002 applies only when ... Clandestine removal - worn out parts of the capital goods from the factory without payment of duty - Rule 3(4) of Cenvat Credit Rules, 2002 - Held that: - From the plain reading of the above Rule 3(4), it is clear that the duty is required to be paid only if the capital goods is removed as such - In the present case, it is undisputed that the worn out parts of the capital goods were cleared, therefore in case of used parts/capital goods Rule 3(4) is not applicable - appeal allowed - decided in favor of assessee Issues:- Duty demand under Rule 3(4) of Cenvat Credit Rules, 2002 for removal of worn-out parts of capital goods without payment.Analysis:The case involved the appellant removing worn-out parts of capital goods from the factory without paying duty, leading to a demand raised by the department under Rule 3(4) of the Cenvat Credit Rules, 2002. The adjudicating authority and Commissioner (Appeals) upheld the demand, prompting the appellant to appeal. The appellant's counsel argued that since no Cenvat credit was availed on the capital goods and no evidence supported otherwise, Rule 3(4) was not applicable. Additionally, it was contended that the duty could only be demanded if the capital goods were removed as such, not when worn-out parts were cleared after use. Several judgments were cited in support of this argument.On the other hand, the Revenue reiterated the findings of the impugned order, maintaining the duty demand under Rule 3(4). After considering both sides' submissions, the Member (Judicial) observed that Rule 3(4) of the Cenvat Credit Rules, 2002 required duty payment only if the capital goods were removed as such. Since in this case, only worn-out parts of the capital goods were cleared after use, the rule did not apply. The Member found support in the judgments cited by the appellant's counsel and set aside the impugned order, allowing the appeal.In conclusion, the judgment clarified the application of Rule 3(4) of the Cenvat Credit Rules, 2002 in cases involving removal of worn-out parts of capital goods. It emphasized that duty payment is required only when the capital goods are removed as such, not when used parts are cleared, as was the situation in the present case. The decision was based on a careful analysis of the rule and relevant precedents, ultimately leading to the appeal being allowed in favor of the appellant.