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 ... Availed credit of duty paid on inputs & CG received for setting up of the power plant – power plant leased & received electricity at prescribed rates - There is no physical removal of CG or inputs from factory inasmuch as the power plant remained within the factory premises - Rule 11 CER which stipulates that removal of excisable goods from a factory must be made under an invoice is not applicable because plant remained captive(for mfg.cement)even after lease & impugned land was part of factory 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.