2009 (8) TMI 440 - AT - Central Excise

Requirement to Reverse 50% Cenvat Credit on Capital Goods & Pay Balance + Interest

COMMISSIONER OF CENTRAL EXCISE, KANPUR Versus GEETA INDS. (P) LTD.

COMMISSIONER OF CENTRAL EXCISE, KANPUR Versus GEETA INDS. (P) LTD. - 2010 (249) E.L.T. 99 (Tri. - Del.) , [2010] 25 STT 353 (NEW DELHI - CESTAT) Issues Involved:1. Whether the respondent should reverse the full Cenvat credit originally taken when capital goods are removed after use.2. Interpretation of the term 'as such' in Rule 3(5) of Cenvat Credit Rules, 2004.3. Determination of the amount to be reversed when capital goods are removed after use.4. Applicability of the Tribunal's judgment in the case of Madura Coats Pvt. Ltd. v. CCE, Tirunelveli.5. Applicability of the Tribunal's judgment in the case of Modernova Plastyles Pvt. Ltd. v. CCE, Raigad.6. Calculation of the penalty amount.Detailed Analysis:1. Full Reversal of Cenvat Credit:The Department argued that the respondent should reverse the full Cenvat credit originally taken on the capital goods when they are removed after use. The respondent had paid duty on the transaction value, which was significantly lower than the original credit taken. The Department demanded the balance amount of Rs.2,21,048/- along with interest and proposed a penalty.2. Interpretation of 'As Such':The term 'as such' in Rule 3(5) of Cenvat Credit Rules, 2004 was debated. The Department interpreted 'as such' to mean 'in original form' without any addition, alteration, or modification, irrespective of whether the capital goods were used or unused. The respondent argued that since the capital goods were used, they should not be considered 'as such' and thus, the full credit should not be reversed.3. Amount to be Reversed:The Tribunal noted that during the period from 1-3-03 to 12-11-07, there were no specific provisions for the reversal of Cenvat credit for used capital goods. It was concluded that insisting on the reversal of the full credit originally taken would lead to absurd results. Instead, a proportionate credit depending on the period of use should be reversed, using the formula prescribed in old Rule 57S(2)(b) of Central Excise Rules, 1944 and the 2nd proviso to Rule 3(5) of Cenvat Credit Rules, 2004.4. Madura Coats Pvt. Ltd. Judgment:The Commissioner (Appeals) had relied on the Tribunal's judgment in the case of Madura Coats Pvt. Ltd. v. CCE, Tirunelveli, which held that the removal of cenvated capital goods after some years of use is not the same as removal 'as such.' However, this decision was overruled by the Larger Bench in Modernova Plastyles Pvt. Ltd. v. CCE, Raigad.5. Modernova Plastyles Pvt. Ltd. Judgment:The Larger Bench in Modernova Plastyles Pvt. Ltd. v. CCE, Raigad held that the term 'as such' means in the original form without any addition, alteration, or modification, and it applies to both used and unused capital goods. Therefore, the provisions of Rule 3(5) would be applicable even when capital goods are removed after use.6. Calculation of Penalty:The Tribunal found that since the capital goods were cleared after about five years of use, it would be fair to reverse 50% of the Cenvat credit originally taken. Since the respondent had already paid Rs.44,000/-, the balance amount of Rs.88,524/- was recoverable along with interest. The penalty was reduced to Rs.10,000/-.Conclusion:The impugned order-in-appeal was set aside, and the order-in-original was restored with modifications. The respondent was required to pay Rs.88,524/- along with interest, and the penalty was reduced to Rs.10,000/-. The Revenue's appeal was disposed of accordingly.(Pronounced in the open Court on 28-8-2009)