2018 (4) TMI 1046 - HC - Central Excise

Court quashes order citing inadequate defense consideration under Cenvat Credit Rules

The court quashed the impugned order due to insufficient consideration of the petitioner's defense regarding the deemed removal of capital goods under ... CENVAT credit - Reversal of credit on capital goods - lease back of goods - contemporaneous leasing back through rental agreement - whether the leasing back amounts to removal of capital goods from the factory premises of the petitioner or not? - Rule 3(5) of the CCR - Held that: - In any adjudicatory process, the authority has a duty to deal with every material and relevant contention raised by the disputant. This alone will ensure that decision-making occurs thoroughly and lawfully and that the decision-maker's mind is focussed. The decision-maker needs to be disciplined in addressing questions, nor just arriving at answers. The stand of the writ petitioner is that the revenue has not questioned the legality of the sale dated 22.03.2013 and the rental agreement. In the counter affidavit it has been stated that the revenue has not accepted the transaction as genuine at any point of time. If according to the respondent, the sale dated 22.03.2013 is not genuine, the question of deemed removal of the goods will not even arise. The petitioner has made out a convincing case for bye-passing the statutory alternative remedy available to it and for directly invoking the jurisdiction of this Court - matter is remitted to the file of the respondent for fresh consideration in accordance with law - petition allowed by way of remand. Issues:1. Interpretation of Rule 3(5) of the Cenvat Credit Rules in the context of deemed removal of capital goods.2. Consideration of submissions made by the petitioner in response to the show cause notice.3. Validity of the impugned order and the need for remand for fresh consideration.Analysis:1. Interpretation of Rule 3(5) of the Cenvat Credit Rules: The petitioner, a company engaged in manufacturing tyres and tubes, sold capital goods to another company and leased them back. The respondent contended that there was a deemed removal of the goods, requiring the petitioner to reverse cenvat credit or pay duty. The petitioner argued that no removal occurred, citing a Division Bench decision. The court referred to the Division Bench decision which clarified that Rule 3(5) applies when goods are physically removed, not in cases of mere financial transactions. The court found the impugned order lacked consideration of this defense, leading to its quashing.2. Consideration of Submissions: The petitioner sought quashing of the order due to non-consideration of their submissions during the proceedings. The court noted the prayer for remand to allow fresh consideration of the case. It emphasized the need for authorities to address all relevant contentions raised by the parties for a thorough and lawful decision-making process. The court found the impugned order deficient in addressing the petitioner's defense based on legal precedents, warranting its quashing.3. Validity of the Impugned Order and Remand: The court highlighted the petitioner's reliance on legal precedents and the failure of the respondent to contest the genuineness of the sale transaction. It held that the impugned order was invalid as it did not address the petitioner's defense adequately. The court allowed the writ petition, quashed the impugned order, and remitted the matter to the respondent for fresh consideration in accordance with the law. It directed the respondent to provide a personal hearing to the petitioner, emphasizing the need for a clear stand from the revenue department. The court concluded by allowing the writ petition without costs.In summary, the judgment focused on the correct interpretation of Rule 3(5) of the Cenvat Credit Rules, the necessity for authorities to consider all submissions made by parties, and the invalidity of the impugned order due to insufficient consideration of the petitioner's defense. The court emphasized the importance of addressing all relevant contentions and legal precedents in decision-making processes, leading to the quashing of the order and remand for fresh consideration.