Manufacturer liable for central excise duty on machinery sold as scrap under Rule 3(5A)(b) CENVAT Credit Rules 2004

CESTAT New Delhi dismissed the appeal. The appellant was liable to pay central excise duty on sale of old machinery as scrap under Rule 3(5A)(b) of CENVAT Credit Rules, 2004, as capital goods cleared as waste require duty payment on transaction value. The court found insufficient correlation between purchase and sale bills, with inadequate documentation. The appellant wrongly availed CENVAT credit on outward freight service tax beyond place of removal, making recovery liable under Rule 14 of CCR, 2014. Extended limitation period and penalty were upheld due to deliberate suppression with intent to evade duty payment.

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Issues:
1. Leviability of central excise duty on sale of old machinery as scrap.
2. Eligibility of cenvat credit of service tax availed on outward freight under GTA services.

Issue 1: Leviability of Central Excise Duty on Sale of Old Machinery as Scrap

The appellant, a manufacturer of corrugated boxes, purchased machinery in 1990 without paying excise duty. Subsequently, the appellant sold the old machinery as scrap without paying central excise duty. The issue revolved around the applicability of Rule 3(5A)(b) of Cenvat Credit Rules, 2004, which requires payment of duty on the transaction value if capital goods are cleared as waste and scrap. The Tribunal held that the appellant was liable to pay the duty as per statutory provisions, irrespective of availing cenvat credit at the time of purchase. The lack of correlation between the purchase and sale bills further supported the duty liability under Rule 3(5A)(b). The appellant's argument regarding the non-applicability of the rule was dismissed, and the demand for duty was upheld.

Issue 2: Eligibility of Cenvat Credit of Service Tax on Outward Freight

The appellant availed cenvat credit of service tax on outward freight beyond the factory gate, contrary to the definition of 'input service' under Rule 2(l) of CCR. The rule specifies that outward transportation up to the place of removal qualifies as an input service. As the appellant utilized this credit towards payment of excise duty, which was not permissible due to the actual 'place of removal' being the factory gate, the credit was found inadmissible. The failure to reverse entries in the ER-I Returns and service tax payable ledger accounts indicated wrongful availing of the credit. Consequently, the appellant was held liable to pay back the credit under Rule 14 of CCR, 2014. The deliberate suppression of information to evade duty payment invoked the extended period of limitation and warranted a penalty. The Tribunal affirmed the decision, dismissing the appeal and upholding the demand for duty, interest, and penalty.

In conclusion, the Tribunal ruled in favor of the Revenue on both issues, affirming the demand for central excise duty on the sale of old machinery as scrap and rejecting the eligibility of cenvat credit of service tax on outward freight. The judgment emphasized adherence to statutory provisions and penalized the appellant for wrongful availing of credits and evasion of duty payment.

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