Rule 3(5) Cenvat Credit rules 2004

[Srivatsan Krishnamachari]

Dear Learned Friends,

As per Rule 3 of Cenvat Credit Rules 2004, if used Capital Goods are removed after they are used for a number of years, then the manufacturer or  provider of output service shall pay an amount equal to the credit taken on the said Capital Goods,reduced by the percentage points under straight-line method at the rate of 2.5 percent per quarter.

I have come across a Tribunal Decision in respect of Pooja Forge Ltd vs. CCE = 2006 (1) TMI 290 - CESTAT, NEW DELHI in which it was held that in case of movement of the Capital Goods in between two units of the same Assessee and for use in the manufacture of same final products, it does not involve any disposal or alienation of Modvated Capital Goods which would warrant return/denial of modvat credit. .......'

We are closing the activities in the existing Premises and moving out to our another Premises(Registered under Central Excise) which necessitates shifting of Machines to our second Unit and the Machines which are to be shifted are going t o be used in the manufacture of final products.

My query is whether can we remove the machines to our second unit without reversing the credit taken on those machines by applying the ratio as held in the case of the above referred case law ' Pooja Forge Ltd vs. CCE = 2006 (1) TMI 290 - CESTAT, NEW DELHI

I solicit your valued replies.

Thanks & With Regards,

K.Srivatsan

AI Summary

Debate on Rule 3(5) of Cenvat Credit Rules 2004: Is credit reversal needed for intra-entity capital goods transfer? A query was raised regarding the application of Rule 3(5) of the Cenvat Credit Rules 2004, concerning the removal of used capital goods between units of the same entity without reversing the credit. The discussion referenced a tribunal decision in Pooja Forge Ltd vs. CCE, which allowed such movement without credit reversal if there was no revenue loss. However, a response highlighted that this decision cannot be generalized, as circumstances vary. The rule logically requires credit reversal based on depreciation, and the recipient unit can claim the credit if the goods remain dutiable. The benefits of duty-free transfers are limited to specific entities.