2023 (4) TMI 1129 - AT - Central Excise

Appellant not liable for cenvat amount on damaged capital goods under Cenvat Credit Rules

GUJARAT ALKALIES AND CHEMICALS LTD Versus C.C.E. & S.T. -VADODARA-II

The appellant was found not liable to pay the cenvat amount under sub-rule 5(A) of Rule 3 of Cenvat Credit Rules, 2004 for damaged capital goods cleared ... Reversal of CENVAT Credit on damaged Capital Goods - damaged goods are usable or not - Department is of the opinion that the machines so damaged on which insurance claim has been received by the appellant is to be treated as cleared after being put to use and the appellant is required to reverse the cenvat credit in terms of sub rule 5 (A) of Rule 3 of Cenvat Credit Rules, 2004 - HELD THAT:- The fact of the case is not under dispute that the machine was used for almost 4 years thereafter it got damaged, the appellant also filed the insurance claim and after survey when the surveyor was satisfied the machines are not usable, the insurance company sanctioned the insurance claim. It is also fact in record that the appellant have cleared such damaged capital goods as waste and scrap. Whether the capital goods on which the CENVAT credit was availed has been cleared as usable capital goods or waste and scrap? - HELD THAT:- As much as the appellant have cleared the capital goods as waste and scrap coupled with the fact of insurance claim it is absolutely beyond doubt that the capital goods became waste and scrap as the same is not usable for the intended purposes. In such case clearance of capital goods clearly falls under Rule 3 (5A)(b) therefore, the appellant have rightly paid the amount equal to the duty leviable on transaction value of the capital goods. Appeal allowed. Issues involved:The issues involved in the judgment are the liability of the appellant to pay cenvat amount in terms of sub-rule 5(A) of Rule 3 of Cenvat Credit Rules, 2004, regarding the clearance of damaged capital goods as waste and scrap, and the correct quantification of the demand for Central Excise Duty.Liability to pay cenvat amount:The case involved a situation where the appellant received an insurance claim for damaged capital goods. The department contended that the damaged machines, on which cenvat credit was availed, should be treated as cleared after being put to use, requiring the appellant to reverse the cenvat credit as per sub-rule 5(A) of Rule 3. The initial Order-In-Original confirmed the demand, leading to an appeal by the appellant. The Commissioner (Appeals) remanded the matter for quantification but upheld the liability to pay cenvat amount. The appellant, dissatisfied with this decision, filed the present appeal challenging the order.Clearance of damaged capital goods as waste and scrap:The appellant argued that the damaged machines were not usable and were subsequently sold as waste and scrap, supported by the issuance of an invoice declaring them as such. The appellant contended that the duty paid on the transaction value of the machines cleared as waste and scrap was legal. The appellant cited relevant judgments to support their position. The Revenue, represented by the Assistant Commissioner, reiterated the findings of the impugned order.Judgment and Decision:After considering the submissions and perusing the records, it was noted that the damaged machine was used for almost four years before getting damaged, and the insurance claim was sanctioned after the surveyor confirmed the machines were not usable. The appellant had cleared the damaged capital goods as waste and scrap. The relevant provision of sub-rule (5A) of Rule 3 was examined, which outlines the payment requirements for used capital goods. It was established that the capital goods had become waste and scrap, as evidenced by the clearance and insurance claim. Therefore, the clearance of capital goods fell under Rule 3(5A)(b), and the appellant had correctly paid the duty leviable on the transaction value. Consequently, the impugned order was set aside, and the appeal was allowed with consequential relief.(Separate Judgment by Judge Ramesh Nair):The judgment was pronounced in the open court on 13.04.2023 by Hon'ble Member (Judicial) Mr. Ramesh Nair.