2010 (2) TMI 391 - AT - Central Excise

Interpretation of Cenvat Credit Rule on Capital Goods Sale

The case focused on the interpretation of Rule 3(5) of the Cenvat Credit Rules, 2004 regarding the reversal of credit on the removal of cenvated capital ... Cenvat Credit- As such removal of capital goods burnt in fire accident. Impugned items described as ‘burnt plant & machinery along with accessories in sales invoice. No dispute regarding fire accident in assessee’s factory during period. Revenue’s case that impugned machinery was not a total scrap and cleared as such. Held that- There is no evidence produced by the Department that the machinery sold was not scrap but was usable capital goods. In view of this, it cannot be said that the capital goods had been removed as such. The duty has, therefore, been correctly paid on the goods on the transaction value. Issues:1. Interpretation of Rule 3(5) of Cenvat Credit Rules, 2004 regarding reversal of credit on removal of cenvated capital goods.2. Determination of whether the burnt machinery sold after a fire accident constitutes removal of cenvated capital goods as such.3. Application of Tribunal judgments in similar cases to the current scenario.Analysis:1. The primary issue in this case revolves around the interpretation of Rule 3(5) of Cenvat Credit Rules, 2004, which mandates the reversal of credit on the removal of cenvated capital goods. The Department contended that the machinery sold after the fire accident, described as 'burnt plant and machinery,' retained its identity as capital goods, necessitating the payment of an amount equal to the credit originally taken. The Department argued that the Tribunal's judgment in Modernova Plastyles Pvt. Ltd. v. CCE supported this position, emphasizing that the term 'as such' in the rule encompasses both new and used capital goods. However, the Respondent argued that the machinery, post-fire accident, no longer qualified as capital goods and was sold as scrap, citing the Tribunal's decision in CCE v. Geeta Industries as precedent.2. The second issue pertains to determining whether the burnt machinery sold post-fire accident constitutes the removal of cenvated capital goods as such. The Department maintained that the machinery was not entirely scrap and was cleared as plant and machinery, warranting the reversal of credit. Conversely, the Respondent contended that the machinery had lost its identity as capital goods due to the fire accident and subsequent sale as scrap, thereby not constituting removal of cenvated capital goods. The Tribunal scrutinized the circumstances, noting the significant loss suffered in the fire and the subsequent sale of machinery at a fraction of its original value, concluding that the machinery was indeed sold as scrap, not as capital goods, and thus, the duty was correctly paid based on the transaction value.3. The final issue involved the application of previous Tribunal judgments to the present case. While the Department relied on precedents to support its stance on the interpretation of the rule, the Respondent also cited relevant cases to bolster their argument regarding the nature of the machinery sold post-fire accident. Ultimately, the Tribunal upheld the Commissioner (Appeals)'s decision, emphasizing the factual evidence of the machinery being sold as scrap after the fire accident, leading to the conclusion that the duty was correctly paid based on the transaction value. Consequently, the Revenue's appeal was dismissed, and the Cross Objection by the Respondent was also disposed of.This detailed analysis highlights the key legal arguments, factual considerations, and precedents relied upon in the judgment delivered by the Appellate Tribunal CESTAT, New Delhi.