2022 (10) TMI 1005 - AT - Central Excise

Power plant transfer in slump sale without physical removal not subject to Cenvat Credit Rules

The Tribunal held that the transfer of a power plant on a slump sale basis without physical removal of capital goods does not attract Rule 3(5A) of the ... CENVAT Credit - removal of capital goods as such - power plant - Rule 3(5A) of Cenvat Credit Rules, 2004 - it appeared to Revenue that the appellant have not given proper information to the Department of such transaction wherein they transferred their power plant to SPPL on as is where is basis under BTA - extended period of limitation - HELD THAT:- The appellant-seller agreed to sell, convey, assign and transfer to the purchaser, all the assets and liabilities as defined in Schedule-I and Schedule-II, free from all encumbrances as a going concern and as an inseparable whole, on slump sale basis for an aggregate consideration of Rs. 85 cr. as set out in Clause 3 of the BTA. It is not in dispute that the appellant as seller has transferred the entire movable and immovable assets and liabilities as a going concern on “as is where is basis” to the purchaser without uprooting or physically shifting the capital goods from the place of installation of the power plant. This is clear from preamble clause (E), clause 2.1.1 and clause 3.1.1 of the BTA. In the erstwhile Central Excise Rules, 1944 or the Central Excise Rules, 2002, the manufacturer of excisable goods was required to pay duty on the goods removed from the factory or the bonded warehouse. The sale of goods or transfer of ownership of the goods from the seller to the buyer, is not the criteria to cast duty liability on the manufacturer/seller of excisable goods. What is important is the physical removal of excisable goods from the factory of the manufacturer. Both the appellants viz. M/s Simbhaoli Sugars Ltd., Chilwaria and Simbhaoli were not required to reverse the cenvat credit on sale of capital goods, as part of running power plant, in terms of rule 3(5A) of CCR, 2004. We further hold that no penalty is imposable under Rule 26 of CER, 2002 on the Chairman of the appellant company. In view of the ruling of Hon’ble Madras High Court in the case of THE COMMISSIONER OF CENTRAL EXCISE VERSUS CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL, M/S. DALMIA CEMENTS (BHARAT) LTD. [2015 (7) TMI 267 - MADRAS HIGH COURT], which have been accepted by the CBIC as clarified in the Circular No. 1063/2/2018-CX, we hold that in the facts and circumstances of the present case, there is no removal of capital assets/power plant. As There have been no removal, the provision of Rule 3(5A) of Cenvat Credit Rules are not attracted. Appeal allowed - decided in favor of appellant. Issues Involved:1. Applicability of Rule 3(5A) of Cenvat Credit Rules, 2004 on the transfer of capital goods.2. Definition and interpretation of the term 'removal' under Central Excise Rules and Cenvat Credit Rules.3. Validity of extended period of limitation for issuing the show cause notice.4. Imposition of penalty on the appellant company and its Chairman.Issue-wise Detailed Analysis:1. Applicability of Rule 3(5A) of Cenvat Credit Rules, 2004 on the transfer of capital goods:The core issue was whether the transfer of the power plant by the appellant to its subsidiary on a slump sale basis without physical removal of the capital goods attracts the provisions of Rule 3(5A) of the Cenvat Credit Rules, 2004. The Tribunal held that Rule 3(5A) applies when capital goods are physically removed from the factory premises. The Tribunal relied on the Supreme Court's interpretation in J.K. Spinning & Weaving Mills Ltd. vs. Union of India, which defined 'removal' as the physical movement of goods from one place to another. Since the power plant was transferred on an 'as is where is basis' without physical removal, Rule 3(5A) was not applicable.2. Definition and interpretation of the term 'removal' under Central Excise Rules and Cenvat Credit Rules:The Tribunal emphasized that the term 'removal' is not defined in the Central Excise Act, Rules, or the Cenvat Credit Rules. The Supreme Court in J.K. Spinning & Weaving Mills Ltd. clarified that 'removal' implies physical shifting of goods. The Tribunal found that the transfer of the power plant did not involve physical movement, and thus, did not constitute 'removal' under the relevant rules. The Tribunal also referred to the case of Dalmia Cements (Bharat) Ltd., where it was held that leasing out a power plant without physical removal did not attract Rule 3(5) of the Cenvat Credit Rules.3. Validity of extended period of limitation for issuing the show cause notice:The Tribunal examined whether the extended period of limitation was rightly invoked. It was argued that the appellant did not disclose the transfer to the Department, constituting suppression of facts. The Tribunal found that the issue involved interpretation of the term 'removal,' and there was no deliberate attempt to evade duty. Therefore, the extended period of limitation was not justified.4. Imposition of penalty on the appellant company and its Chairman:The adjudicating authority had imposed penalties on both the appellant company and its Chairman under Rule 26 of the Central Excise Rules, 2002. The Tribunal held that since there was no removal of capital goods, no duty was payable, and consequently, no penalty was warranted. The Tribunal also noted that for imposing personal penalty under Rule 26, it must be shown that the person had dealt with excisable goods knowing they were liable to confiscation, which was not established in this case.Conclusion:The Tribunal allowed the appeals, setting aside the impugned order. It held that there was no removal of capital goods, and thus, Rule 3(5A) of the Cenvat Credit Rules was not applicable. Consequently, the demand for duty and the imposition of penalties were not sustainable. The appellant was entitled to consequential benefits in accordance with the law.