CESTAT allows appeal on CENVAT credit reversal for capital goods used 2-4 years before sale

CESTAT Allahabad allowed the appeal regarding reversal of CENVAT credit on capital goods. The tribunal held that capital goods used for 2-4 years before sale cannot be considered as sold "as such" but rather as used capital goods, following Delhi HC precedent. The tribunal found that Rule 3(5) of CCR 2004 lacked recovery mechanism for CENVAT credit during the disputed period, and revenue failed to prove credit availment per SC ruling. The demand was set aside and impugned order reversed.

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Issues Involved:
1. Applicability of Rule 3(5) of the Cenvat Credit Rules, 2004.
2. Requirement of reversal of Cenvat credit on removal of used capital goods.
3. Invocation of extended period of limitation.
4. Onus of proof regarding availment of Cenvat credit.

Issue-Wise Detailed Analysis:

1. Applicability of Rule 3(5) of the Cenvat Credit Rules, 2004:
The core issue was whether Rule 3(5) of the Cenvat Credit Rules, 2004 was applicable to the case where the capital goods were removed after being used. The Tribunal examined the rule, which states that when inputs or capital goods, on which CENVAT credit has been taken, are removed as such from the factory, the manufacturer must pay an amount equal to the credit availed.

The Tribunal referenced the judgment of the Hon'ble High Court of Delhi in Harsh International (Khaini) Pvt. Ltd. v. Commissioner of Central Excise, which concluded that used capital goods cannot be considered as removed "as such." The Tribunal agreed with this interpretation, noting that the goods sold by the appellant had been used and thus did not fall under the purview of Rule 3(5).

2. Requirement of Reversal of Cenvat Credit on Removal of Used Capital Goods:
The appellant argued that Rule 3(5) was not applicable because the capital goods were not removed "as such." The Tribunal supported this argument, noting that the goods had been used to their full extent and thus did not retain their original character. The Tribunal cited multiple decisions, including Harsh International and Cummins India Ltd. v. CCE, which upheld that used capital goods do not require reversal of Cenvat credit upon removal.

The Tribunal also referenced the judgment of the Hon'ble Supreme Court in Commissioner of Customs vs. Auto Ignition Ltd., which held that the onus to prove that the assessee had availed the Modvat credit was on the Revenue. The Tribunal concluded that the appellant had not availed any credit on the disputed goods, supported by the Chartered Accountant's certificate, and thus the question of reversal did not arise.

3. Invocation of Extended Period of Limitation:
The appellant contended that the extended period of limitation was wrongly invoked as there was no suppression or misstatement of facts. The Tribunal agreed, noting that the Department had full knowledge of the facts, and the appellant had been filing returns regularly. The Tribunal emphasized that the demand was raised following an audit objection, which does not constitute suppression of facts. Therefore, invoking the extended period was deemed illegal and unsustainable.

4. Onus of Proof Regarding Availment of Cenvat Credit:
The Tribunal reiterated that the burden of proof was on the Department to establish that the appellant had availed the Cenvat credit on the disputed goods. The Tribunal found that the Department failed to provide sufficient evidence to support its claim. The Chartered Accountant's certificates submitted by the appellant clearly showed the bifurcation of assets sold division-wise, indicating that the appellant did not avail any credit on the goods in question.

Conclusion:
The Tribunal concluded that Rule 3(5) of the Cenvat Credit Rules, 2004 was not applicable to the removal of used capital goods. The demand for reversal of Cenvat credit was not sustainable as the goods were not removed "as such." The invocation of the extended period of limitation was also found to be unjustified. Consequently, the impugned order was set aside, and the appeal filed by the appellant was allowed with consequential relief as per law.

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