2009 (4) TMI 184 - AT - Central Excise

Tribunal rules on Cenvat credit reversal for used capital goods based on utilization and depreciated value

The Tribunal held that the reversal of Cenvat credit on capital goods cleared after use should be based on the extent of utilization and the depreciated ... Reversal of credit on removal of used capital goods - if the capital goods are removed after some use, at a stage in between the “unused” and “fully scrapped”, they have not lost their identity as capital goods and since on removal of totally unused capital goods, full Cenvat credit is required to be reversed and on removal of unserviceable capital goods, removal as scrap, no Cenvat credit would be required to be reversed, in case of removal of used capital goods in between unused stage and scrap stage, when the capital goods, though used, have still retained their identity as capital goods, it would be logical to insist on reversal of Cenvat credit depending upon the extent of use, which would be more or less the duty chargeable on the depreciated value of the used capital goods. If the Department’s view is accepted, it would lead to absurd results as even when the cenvated capital goods are cleared after long years of use at a small practice of their original value, still full Cenvat credit originally taken would be required to be reversed which would defeat the very purpose of grant of Cenvat credit facility in respect of capital goods. - I do not find any merit in the Revenue’s appeal. Issues:- Interpretation of Rule 3(4) of Cenvat Credit Rules, 2002 regarding reversal of Cenvat credit on cleared capital goods.- Application of Rule 3(4) to capital goods cleared after use.- Comparison of judgments in different cases regarding the reversal of Cenvat credit on used capital goods.Analysis:1. The case involved a dispute over the reversal of Cenvat credit on a capital good, an induction furnace, cleared after use. The Revenue contended that the entire Cenvat credit taken should be reversed as per Rule 3(4) of Cenvat Credit Rules, 2002. The Respondent argued that capital goods cleared after use cannot be considered as 'cleared as such,' relying on the interpretation of the term 'as such' in previous judgments.2. The Tribunal examined the provisions of Rule 3(4) of Cenvat Credit Rules, 2002 applicable before 1-3-03, which required payment equal to the Cenvat credit taken when capital goods are cleared as such. It was noted that capital goods, unlike inputs, lose their identity gradually with use. The Tribunal highlighted that if capital goods are removed after some use but before becoming unserviceable, the reversal of Cenvat credit should be based on the extent of use, akin to duty on the depreciated value.3. The Tribunal referenced the case law to support its decision. In the case of CCE v. Nahar Fibres, it was held that the term 'as such' in Rule 3(4) refers to the identity of the goods, allowing for charging duty on the depreciated value of used capital goods. Additionally, the judgment in Cummins India Ltd. v. CCE established that used capital goods cleared after years of service do not require full reversal of Cenvat credit, aligning with the interpretation of Rule 3(4).4. The Tribunal distinguished the judgment in Modernova Plastyles Pvt. Ltd. v. CCE, Raigad, from the present case, emphasizing that each case must be analyzed based on its specific circumstances. Ultimately, the Tribunal found no merit in the Revenue's appeal and dismissed it after considering the arguments and legal precedents presented by both parties.5. The decision reaffirmed the principle that the reversal of Cenvat credit on capital goods cleared after use should be based on the extent of utilization and the depreciated value, rather than mandating a full reversal of the credit originally taken. The judgment provided clarity on the application of Rule 3(4) in cases involving used capital goods, ensuring a fair and reasonable approach to Cenvat credit reversals in such scenarios.