Appellant wins appeal over CENVAT credit timing error on capital goods transfer under Rule 4(2)(a) CCR 2004

CESTAT Chennai allowed the appeal against wrongful CENVAT credit availment on capital goods. The appellant transferred capital goods from Vellore to Ranipet factory during shifting and took entire credit in same financial year instead of 50% as required under Rule 4(2)(a) of CCR, 2004. CESTAT held this was merely procedural infraction since appellant was eligible for balance credit in subsequent years and had paid interest and penalty. Additionally, demand under Rule 8(3A) of Central Excise Rules, 2002 was set aside following Bombay HC precedent declaring the rule unconstitutional. The impugned order was set aside and appeal allowed.

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Issues Involved:

1. Legality of the demand of Rs. 26,97,256/- for alleged wrong availment of credit on capital goods.
2. Validity of demand raised under Rule 8(3A) of Central Excise Rules, 2002.

Issue-wise Detailed Analysis:

1. Legality of the Demand for Alleged Wrong Availment of Credit on Capital Goods:

The appellant engaged in manufacturing electrical components transferred capital goods from Vellore to Ranipet due to factory shifting. Instead of transferring credit as allowed under Rule 10 of the CENVAT Credit Rules, 2004, the appellant raised an invoice and paid duty on these goods, availing the entire credit in the same financial year. The Department contended that the appellant should have availed only 50% of the credit in the first year as per Rule 4(2) of the CENVAT Credit Rules, 2004, and demanded Rs. 26,97,256/- for excess credit availed. The appellant argued that the error was procedural, having paid interest and penalty for the excess credit. The Tribunal noted that the appellant was eligible to take the balance credit in subsequent years and had rectified the procedural error by paying the required interest and penalty. Thus, the demand was deemed unwarranted and set aside as it was a procedural infraction.

2. Validity of Demand Raised Under Rule 8(3A) of Central Excise Rules, 2002:

The Department alleged that the appellant defaulted in duty payment for December 2012 and January 2013, violating Rule 8(3A) by using Cenvat credit during the default period. However, Rule 8(3A) had been struck down as unconstitutional by the Gujarat High Court in Indsur Global Ltd. Vs. Union of India and by the Madras High Court in Malladi Drugs & Pharmaceuticals Ltd. Vs. The Union of India. The Supreme Court's decision to dispose of the Department's appeal in the Indsur Global case without pressing the matter upheld the High Courts' rulings. The Tribunal, considering these precedents, concluded that the demand based on Rule 8(3A) was unsustainable and set it aside.

Conclusion:

The Tribunal found that the procedural error regarding credit availing was rectified by the appellant, and the demand for excess credit was not justified. Additionally, the demand under Rule 8(3A) was invalid due to its unconstitutionality as determined by multiple High Courts and upheld by the Supreme Court's disposition of related appeals. Consequently, the appeal was allowed, setting aside the impugned order, and the cross-objection by the Department was disposed of.

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