2021 (5) TMI 804 - HC - Central Excise

Credit Reversal Overturned: Excise Duty Applies Only on Physical Removal of Capital Goods, Case Sent for Reassessment.

M/s. TVS Srichakra Limited Versus The Commissioner of CGST and Central Excise

The HC quashed the impugned order against the petitioner, who challenged the reversal of credit on sold capital goods, emphasizing that excise duty ... Reversal of CENVAT Credit - Capital Goods - Lease back of sold out capital goods - Deemed removal of goods from the factory premises of the petitioner - core contention of the petitioner's counsel is that the Central Excise Act does not contemplate any deemed removal - HELD THAT:- Circular No.1063/2/2018-CX, dated 16.02.2018, issued by the Central Board of Excise and Customs, in which, it has been stated that the Department has accepted the aforesaid decision of the Madras High Court. The contention of the petitioner's counsel is that the respondent is squarely bound by the decision rendered by the Madras High Court. It is not open to the respondent to disregard the aforesaid binding decision rendered by the Division Bench in M/s.Dalmia Cements Case [2015 (7) TMI 267 - MADRAS HIGH COURT]. More over, the Central Board of Excise and Customs has mandated that the adjudicating authority shall decide the cases falling within their jurisdiction in that light. The order impugned in the writ petition is quashed. The matter is remitted to the file of the respondent. The respondent will bear in mind the Circular No. 1063/2/2018-CX dated 16.02.2018 issued by the Central Board of Excise and Customs, while deciding the issue - Petition allowed by way of remand. Issues:1. Reversal of credit availed by petitioner on sold capital goods.2. Interpretation of deemed removal under Central Excise Act.3. Applicability of previous judicial decisions and circulars on the case.Issue 1: Reversal of credit availed by petitioner on sold capital goodsThe petitioner, engaged in manufacturing tyres and tubes, sold plant and machinery to a finance enterprise and leased them back. The respondent issued a show cause notice seeking to reverse the credit availed on the sold capital goods. Despite the petitioner's reply and a previous order setting aside the respondent's decision, the respondent confirmed the reversal proposal. The petitioner challenged this in a writ petition.Issue 2: Interpretation of deemed removal under Central Excise ActThe authority deemed the goods removed from the factory premises due to the sale and leaseback arrangement, leading to the levying of excise duty. The petitioner argued that excise duty can only be levied upon physical removal of goods, citing a Supreme Court decision. Reference was made to a Madras High Court decision and a circular by the Central Board of Excise and Customs supporting the petitioner's stance on the interpretation of Rule 3(5) of the Cenvat Credit Rules, 2004.Issue 3: Applicability of previous judicial decisions and circulars on the caseThe petitioner contended that the respondent was bound by a previous Madras High Court decision and a circular mandating adherence to such decisions. The petitioner highlighted the principle that authorities must follow binding decisions and cannot ignore them. Despite previous court directions and references to relevant decisions, the adjudicating authority disregarded the principles, leading to the quashing of the impugned order in favor of the petitioner.In a detailed analysis, the judgment addressed the issues of the reversal of credit availed by the petitioner on sold capital goods, the interpretation of deemed removal under the Central Excise Act, and the applicability of previous judicial decisions and circulars on the case. The court emphasized that excise duty can only be levied upon physical removal of goods, as per legal precedents cited by the petitioner. It was noted that the adjudicating authority had ignored previous court directions and binding decisions, leading to the quashing of the impugned order. The judgment highlighted the importance of authorities adhering to established legal principles and decisions, ultimately ruling in favor of the petitioner and remitting the matter to the respondent for reconsideration in line with the Circular issued by the Central Board of Excise and Customs.