2017 (3) TMI 1076 - AT - Central Excise

Tribunal rules no duty on used capital goods removal pre-2007 amendment

The Tribunal allowed the appeal, holding that prior to the 2007 amendment, no duty was payable on the removal of used capital goods, in line with various ... CENVAT credit reversal on removal of used capital goods - interpretation of the expression 'as such' in relation to removal of capital goods - effect of proviso/ amendment to CENVAT Credit Rules by Notification No.39/2007 dated 13.11.2007 - binding effect of jurisdictional High Court precedentCENVAT credit reversal on removal of used capital goods - interpretation of the expression 'as such' in relation to removal of capital goods - effect of proviso/ amendment to CENVAT Credit Rules by Notification No.39/2007 dated 13.11.2007 - binding effect of jurisdictional High Court precedent - Liability to reverse CENVAT credit where capital goods, on which credit was taken, were used in manufacture and subsequently removed prior to amendment of the CENVAT Credit Rules on 13.11.2007 - HELD THAT: - The Tribunal examined Rule 3 of the CENVAT Credit Rules and the proviso inserted by Notification No.39/2007 dated 13.11.2007 which made explicit a liability to pay an amount equal to CENVAT credit reduced by prescribed depreciation where capital goods are removed after use. The Tribunal held that prior to the amendment (13.11.2007) there was no provision requiring reversal or payment of duty on removal of used capital goods. The expression 'as such' was interpreted in line with judicial authorities which held that goods removed after being put to use are not removed 'as such' and therefore Rule 3(5)/Rule 3(4) would not apply to used capital goods removed after use. The Tribunal noted and followed the decision of the jurisdictional High Court in CCE, Bangalore II v. Solectron Centum Electronics Ltd., which held that liability to pay duty on removal of used capital goods arose only after the proviso was added on 13.11.2007, and that prior thereto no duty was payable on removal of used capital goods. Having regard to the binding precedents of the Karnataka High Court and allied decisions (Punjab & Haryana, Bombay, Delhi High Courts and Tribunal authorities cited), the Tribunal concluded that the impugned order confirming demand and imposing penalty was unsustainable and set it aside. [Paras 4, 5]Impugned order set aside; appeal allowed and consequential relief granted to the appellant.Final Conclusion: The Tribunal allowed the appeal, holding that prior to the amendment of the CENVAT Credit Rules by Notification No.39/2007 dated 13.11.2007 there was no liability to reverse CENVAT credit or pay duty on removal of capital goods after they had been used; the order-in-original and the Commissioner(A)'s order were set aside following the binding jurisdictional precedent. Issues:- Liability to reverse CENVAT credit on capital goods when removed after use.Analysis:1. The appeal challenged the order passed by the Commissioner (Appeals) rejecting the appellant's appeal and upholding the order-in-original. The appellant, engaged in manufacturing plastic chairs, availed CENVAT credit on capital goods used in production. The department alleged contravention of Rule 3(5) of CENVAT Credit Rules 2005, leading to a show-cause notice and subsequent confirmation of charges and penalties by the Additional Commissioner.2. The appellant contended that the impugned order contradicted established legal precedents and that no duty was payable on removal of used capital goods before the amendment on 13.11.2007. Citing judgments like Cummins India Limited Vs. CCE, Pune and Madura Coats P. Ltd. Vs. CCE, Tirunelveli, the appellant argued against the necessity to reverse credit on used capital goods. The High Court of Bombay's affirmation of this view was also highlighted.3. The respondent supported the impugned order, referencing judgments like Modernova Plastyles Pvt. Ltd. Vs. CCE, Raigad and Harsh International Pvt. Ltd. Vs. CCE, Delhi II, asserting the liability to pay duty on removal of used capital goods.4. The Tribunal analyzed the legal provisions and case law interpretations regarding the reversal of CENVAT credit on used capital goods. Notably, the amendment on 13.11.2007 clarified the liability to pay duty on such goods. The Tribunal referred to the Punjab and Haryana High Court's decision in Commissioner of Central Excise, Ludhiana v. Khalsa Cotspin (P) Ltd., emphasizing the need to reverse credit only if goods were cleared without excise duty payment.5. Relying on various High Court judgments, including those of Bombay, Delhi, and Karnataka, the Tribunal concluded that prior to the 2007 amendment, no duty was payable on the removal of used capital goods. Following the Karnataka High Court's precedent, the Tribunal held the impugned order unsustainable in law and allowed the appeal with consequential relief.This detailed analysis of the judgment highlights the legal intricacies surrounding the liability to reverse CENVAT credit on capital goods removed after use, emphasizing the significance of legal precedents and statutory provisions in reaching a decision.