2007 (11) TMI 211 - AT - Central Excise

Tribunal rules in favor of Dalmia Cements in Cenvat credit dispute

The Tribunal ruled in the case involving M/s. Dalmia Cements (Bharat) Ltd. that there was no physical removal of capital goods or inputs from the factory ... Rule 3(5) of the Cenvat Credit Rules, 2004 - removal as such - physical removal - captive power plant - deeming provisionRule 3(5) of the Cenvat Credit Rules, 2004 - removal as such - physical removal - captive power plant - Whether credit availed on inputs, capital goods and input services used in setting up the captive power plant became recoverable under Rule 3(5) by reason of lease of the power plant to a third party. - HELD THAT: - The Tribunal found that the inputs and capital goods had been received and used for setting up a captive power plant within the approved factory premises. Rule 3(5) applies when inputs or capital goods 'are removed as such from the factory' and further requires such removal to be under the cover of an invoice referred to in the Central Excise Rules. Reliance on this expression and on the scheme of excise law (including Rule 11 of the Central Excise Rules) led the Tribunal to hold that 'removal' contemplates physical movement of goods from one place to another. The capital goods in the present case had lost separate identity, forming an integral part of the power plant which remained within the approved factory ground plan; there was therefore no physical removal of capital goods from the assessee's factory and no invoice as envisaged by the Rules. On these facts Rule 3(5) was not attracted and the demand under that provision could not be sustained. [Paras 6, 7, 9, 10, 12]Demand under Rule 3(5) of the CCR, 2004 in respect of credit availed on the power plant was set aside because there was no physical removal of inputs or capital goods from the assessee's factory.Deeming provision - Whether the authorities could treat the lease of the power plant as a deemed removal in the absence of an express deeming provision in the statute. - HELD THAT: - The Tribunal held that deeming can be effected only by an express provision in the statute. Quasijudicial authorities cannot create a deeming provision where none exists in the text. The court relied on precedent recognising that a deeming provision must be express and declined to read any implicit deeming into Rule 3(5). Consequently, the Commissioner could not treat the lease as amounting to a deemed removal of capital goods for the purposes of Rule 3(5). [Paras 11]Lease could not be equated to a deemed removal in the absence of an express statutory deeming provision; the Commissioner's contrary approach was rejected.Final Conclusion: The Tribunal allowed the assessee's appeal and set aside the demand and penalty imposed by the Commissioner under Rule 3(5) of the CCR, 2004, holding that (a) there was no physical removal of inputs or capital goods from the factory and (b) no express deeming provision authorized treating the lease as removal; the Revenue's appeal was dismissed. Issues Involved:1. Demand of Cenvat credit reversal on capital goods, inputs, and input services.2. Physical removal of capital goods and inputs.3. Lease of the power plant and its implications.4. Application of Rule 3(5) of the Cenvat Credit Rules, 2004.5. Extended period of limitation.6. Validity of the penalty imposed.Detailed Analysis:1. Demand of Cenvat Credit Reversal on Capital Goods, Inputs, and Input Services:The assessee, M/s. Dalmia Cements (Bharat) Ltd. (DCL), had availed Cenvat credit on capital goods, inputs, and input services for setting up a power plant. The credit was utilized for payment of duty on cement. The department demanded reversal of this credit under Rule 3(5) of the CCR, 2004, alleging that the power plant was leased out to M/s. Keshav Power Pvt. Ltd. (KPPL), effectively removing the capital goods and inputs from the factory.2. Physical Removal of Capital Goods and Inputs:The core issue was whether leasing the power plant constituted 'removal' of capital goods and inputs from the factory premises. The Tribunal noted that the power plant remained within the factory premises as per the approved ground plan, and there was no physical removal of capital goods or inputs. The Tribunal emphasized that Rule 3(5) of the CCR, 2004, requires physical removal from the factory, which did not occur in this case.3. Lease of the Power Plant and Its Implications:The power plant was leased to KPPL, which continued to generate electricity for DCL's cement manufacturing. The lease included the land and ancillary equipment, with KPPL responsible for operation and maintenance. Despite the lease, the power plant remained a part of DCL's factory premises, and the ownership of the power plant and residual fly-ash remained with DCL.4. Application of Rule 3(5) of the Cenvat Credit Rules, 2004:Rule 3(5) mandates payment of an amount equal to the credit availed when inputs or capital goods are removed 'as such' from the factory. The Tribunal interpreted 'as such' to mean physical removal. Since there was no physical removal of capital goods or inputs, Rule 3(5) was deemed inapplicable. The Tribunal referenced previous decisions, including the case of BILT Industrial Packaging Company Ltd., to support this interpretation.5. Extended Period of Limitation:The department invoked the extended period of limitation, alleging suppression of facts by DCL. However, the Tribunal found that DCL had informed the department about the captive power plant and submitted a revised ground plan. There was no suppression or intent to evade payment, and the extended period of limitation was not applicable.6. Validity of the Penalty Imposed:The Commissioner had imposed a penalty of Rs. 12.5 lakhs under Section 11AC of the Central Excise Act read with Rule 15 of the CCR, 2004. Given the Tribunal's finding that Rule 3(5) was not applicable and there was no suppression of facts, the penalty was also set aside.Conclusion:The Tribunal set aside the demand of Rs. 6,97,31,863/- and the penalty of Rs. 12.5 lakhs imposed on DCL. Consequently, the Revenue's appeal for enhancing the penalty was dismissed. The Tribunal concluded that the provisions of Rule 3(5) of the CCR, 2004, were not attracted as there was no physical removal of capital goods or inputs from the factory premises.