2010 (4) TMI 294 - HC - Central Excise

Rule 3(5) proviso validates adjustment for capital goods cleared after use; sale after duty not treated as cleared as such

HC upheld the Tribunal, dismissing Revenue's appeal and answering issues in favor of the assessee. Machinery used for nine years and then sold after ... Cenvat Credit - clearance as such - Sale of capital goods - reversal of cenvat credit - manufacture of Non-Alloy Steel Ingots - interpretation of the phrase 'as such' - Whether the expression 'capital goods cleared as such' includes capital goods cleared as such after being used in terms of Rule 3 (4) of the Cenvat Credit Rules, 2002? - Respondent in the year of 1994 purchased an Induction Furnace and took credit - Respondent used the said machinery till 2003 and sold the same in May' 2003 after payment of duty of Rs. 32,000/- i.e. 16% on the sale price Rs. 2,00,000/- demand of differential amount of credit - HELD THAT:- Tribunal has rightly noted that unlike inputs, which get consumed 100% with the same are taken up for use in relation to manufacture of finished goods, capital goods are used over a period of time. The capital goods loose their identity as capital goods only when after use over a period of time, the same has become in-serviceable and fit to be scrapped. With effect from 13.11.2007, a proviso has been added to Rule 3 (5) of the Cenvat Credit Rules providing that if the capital goods on which Cenvat credit has been taken are removed after being used, the manufacturer shall pay the amount equal to Cenvat Credit taken on the said capital goods reduced by 2.5% for each quarter of year or part thereof from the date of taking the Cenvat Credit. The Board has also in the Circular dated 01.07.2002 clarified that in the case of clearance of goods after being put into use, the value shall be determined after allowing the benefit to depreciation as per rates fixed in Boards' Letter dated 26.05.1993. The Respondent has utilized the machinery for nine years and paid duty on transaction value. 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 difference between machines cleared without putting into use and cleared after use. The Bombay High Court has upheld the view of the Tribunal in the case of Cummins India Limited Vs. CCE, Pune-III,[2007 (3) TMI 589 - CESTAT, MUMBAI]. The Tribunal in the case of Nahar Fibres [2007 (7) TMI 515 - CESTAT, NEW DELHI] has also dismissed Appeal of the Revenue and there is nothing to show that the said decision of the Tribunal has been set aside by any Court. The questions raised by Revenue are answered in favour of Assessee and Appeal is dismissed. Issues:1. Interpretation of the expression 'capital goods cleared as such' under Cenvat Credit Rules, 2002.2. Consistency in interpretation by different benches of the Tribunal.Analysis:Issue 1:The case involved a dispute where the Revenue challenged the Tribunal's order dismissing the Appeal and confirming that the Respondent had paid the correct amount of duty. The Respondent, engaged in manufacturing Non-Alloy Steel Ingots, purchased an Induction Furnace in 1994 and availed credit equal to the duty paid on the machinery. After using the machinery till 2003, it was sold in May 2003, with duty paid on the sale price. The Revenue contended that the Respondent should pay duty equal to the Cenvat Credit availed at the time of purchase, leading to a demand for a differential amount of credit. The Adjudicating Authority confirmed the demand and imposed additional duty. The Commissioner (Appeals) later allowed the Respondent's appeal, following a Board Circular. The Tribunal, relying on precedent cases, upheld the Respondent's position, emphasizing the distinction between capital goods cleared 'as such' and those cleared after use. The High Court concurred, highlighting the objective of Cenvat Credit on capital goods to prevent duty cascading and the significance of the proviso added to the Rules in 2007 regarding clearance after use.Issue 2:The Revenue raised questions of law challenging the Tribunal's interpretation of 'capital goods cleared as such' and the consistency of this interpretation with a previous Larger Bench decision. The Revenue argued that the Tribunal erred in distinguishing the earlier decision, which defined 'as such' as in its original form without alterations. However, the Respondent's Counsel pointed out that the present case pertained to different Rule provisions not covered in the previous decision. The High Court, after considering arguments from both sides, upheld the Tribunal's decision, emphasizing the nature of capital goods being used over time and losing their identity only when no longer serviceable. The Court concluded that the Appeal lacked merit, answering the Revenue's questions in favor of the Assessee and dismissing the Appeal.In conclusion, the High Court upheld the Tribunal's decision, emphasizing the distinction between capital goods cleared 'as such' and those cleared after use, in line with the Cenvat Credit Rules' objective to prevent duty cascading. The judgment provided clarity on the interpretation of relevant provisions and affirmed the Respondent's position, dismissing the Revenue's Appeal.