2025 (2) TMI 6 - AT - Central Excise

Capital goods cleared after use don't require full CENVAT credit reversal, depreciation benefit allowed

M/s. Ingersoll Rand (India) Limited Versus Commissioner of Central Excise (Appeals), Bangalore

CESTAT Bangalore held that when capital goods purchased between 1994-2007 were cleared to another company after being put to use, the appellant was not ... CENVAT credit - whether the appellant was required to reverse the credit taken on the capital goods or pay duty on the transaction value at the time of clearance? - HELD THAT:- From the worksheet enclosed along with the show- cause notice, it is seen that the capital goods were purchased in the year 1994-1995, 1995-1996, 1996-1997, 2002-2001, 2001-2002, 2002-2003, 2003-2004, 2004-2005, 2005-2006, 2006-2007 and were cleared to M/s. Volvo India Pvt. Ltd. under the Invoice No .236 dated 04.05.2007 on payment of duty of Rs.80,53,153/- on the transaction value of Rs.7,76,47,919/-, but the credit availed on these capital goods was Rs.1,14,06,152/-. The claim of the appellant is that these capital goods were put to use and were not cleared ‘as such’, hence, question of reversal of credit does not arise. In the present case, since the Department does not dispute the fact that the goods were cleared after being put to use, the question of considering the capital goods cleared ‘as such’ for the purpose of reversal of credit cannot be sustained. Moreover, the Commissioner (Appeals) in the impugned order clearly notes that Notification No.39/2007 Central Excise (NT) dated 13.11.2007, the benefit of payment of amount equal to the cenvat credit taken on the said capital goods reduced by 2.5% for each quarter of a year or part thereof from the date of taking the credit has been provided for on removal of the capital goods being used, but holds that this benefit is available only from 13.11.2007 onwards. Conclusion - There are no reason to deny the benefit of depreciation to the used capital goods for discharging the duty on the reduced value at the time of clearance. The impugned order is set aside and the appeal stands allowed. ISSUES PRESENTED and CONSIDEREDThe core legal issue considered in this judgment is whether the appellant, M/s. Ingersoll Rand (India) Ltd., was required to reverse the CENVAT credit taken on capital goods upon their clearance or whether they could discharge duty based on the transaction value of the used capital goods at the time of clearance.ISSUE-WISE DETAILED ANALYSISRelevant Legal Framework and PrecedentsThe relevant legal framework centers around Rule 3(5) of the CENVAT Credit Rules, 2004, which mandates that when inputs or capital goods on which CENVAT credit has been taken are removed 'as such', the manufacturer must pay an amount equivalent to the credit availed. The interpretation of 'as such' is pivotal in this context.The appellant relied on Notification No. 39/2007(NT) dated 13.11.2007, which amended Rule 3(5) to allow for depreciation on used capital goods, and Circular No. 643/34/2002-CX, which clarified the valuation of such goods. They also cited precedents like Betts India Pvt. Ltd. and Lakshmi Machine Works Ltd. to support their position.The Revenue referenced the decision in Commissioner of Central Excise Hyderabad-III Vs. Navodhaya Plastics Industries Ltd. and Modernova Plastyles Pvt. Ltd., arguing that the amendment could not be applied retrospectively and that the appellant should reverse the credit.Court's Interpretation and ReasoningThe Tribunal examined the phrase 'removed as such' and its interpretation in various legal precedents. The Larger Bench in Modernova Plastyles Pvt. Ltd. had interpreted 'as such' to mean in the original form, without any addition, alteration, or modification, regardless of whether the goods were new or used.The Tribunal also considered the High Court's interpretation in Commissioner of C. Ex., Chandigarh Versus Raghav Alloys Ltd., which distinguished between capital goods cleared after use and those cleared without use. The Court noted that requiring reversal of credit for used capital goods would defeat the purpose of the CENVAT scheme, which is to avoid the cascading effect of duty.Key Evidence and FindingsThe appellant had purchased the capital goods between 1994 and 2007 and cleared them in 2007 after use, paying duty on the transaction value. The credit availed was Rs.1,14,06,152/-, while the duty paid was Rs.80,53,153/-. The Tribunal noted that the goods were not cleared 'as such' as they had been used, and the Department did not dispute this fact.Application of Law to FactsThe Tribunal applied the amended Rule 3(5) and the Board's Circular to conclude that the appellant was entitled to reduce the credit by 2.5% per quarter for the period the goods were used. The Tribunal found that the amendment was clarificatory and applicable retrospectively, aligning with the decision in Betts India Pvt. Ltd. where the Supreme Court held that the 2007 amendment clarified the position from 2004.Treatment of Competing ArgumentsThe Tribunal weighed the appellant's reliance on the amended rule and the Board's Circular against the Revenue's argument for credit reversal based on prior interpretations. The Tribunal favored the appellant's interpretation, supported by the High Court's reasoning and the Supreme Court's decision in Betts India Pvt. Ltd.ConclusionsThe Tribunal concluded that the appellant was not required to reverse the credit but could discharge duty on the reduced value of the used capital goods, considering the depreciation allowed under the amended rule.SIGNIFICANT HOLDINGSThe Tribunal held that the amendment to Rule 3(5) was clarificatory and applicable retrospectively. It established that capital goods cleared after use are not considered 'as such' and thus not subject to full credit reversal. The Tribunal set aside the impugned order, allowing the appellant's appeal.'The machine cleared after putting into use for nine years cannot be treated as Cleared 'as such'. Insertion of proviso w.e.f. 13-11-2007 makes it clear that there is a difference between machines cleared without putting into use and cleared after use.'The Tribunal emphasized the importance of avoiding the cascading effect of duty and recognized the appellant's right to benefit from the depreciation on used capital goods.