TaxTMI 
TaxTMI 
2009 (8) TMI 440
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....sold in Rs.1,75,000/-. However, at the time of removal of these machines, in respect of which Cenvat credit had been taken, the respondent paid duty on the transaction value at the rate of 16% ad valorem and on this basis, total duty of Rs.44,000/- was paid. The Department was of the view that since the capital goods had been removed as such, in terms of the provisions of Rule 3(5) of Cenvat Credit Rules, 2004 which were in force at that time, the respondent should have reversed the full Cenvat credit originally taken at the time of receipt of the machines and since the credit originally taken was Rs.2,65,048/- and the duty paid at the time of removal of these machines on sale was only Rs.44,000/-, the department demanded the balance amount of Rs.2,21,048/- along with interest and also proposed imposition of penalty. After issue of SCN, the matter was adjudicated by the Asstt. Commissioner vide order-in-original No. 93/Demand/ACK-1/06 dated 20-3-07 by which Cenvat credit demand of Rs.2,21,048/- along with interest under Section 11AB was upheld against the respondent and besides this, penalty of equal amount under Rule 15 of Cenvat Credit Rules, 2004 was imposed. On appeal by the re....
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....use on the depreciated value, not on the original price, the Cenvat credit originally taken is not required to be reversed and that in this regard, he places reliance on the Tribunal's order No. 393/09-S.M. dated 23-4-09 in the case of CCE, Chandigarh v. M/s. Raghav Alloys (P) Ltd. in which reliance has been placed on Tribunal's judgment in the case of Cummins India Ltd. v. CCE, Pune-III reported in 2007 (219) E.L.T. 911 which has been upheld by the Hon'ble Bombay High Court vide judgment reported in 2009 (234) E.L.T. A120. 3.I have carefully considered the submissions from both the sides and perused the records. In this case, two machines had been purchased in new condition in Rs. 15 lakhs during July and Aug'99 and one new machine had been purchased in Dec'2000 in Rs.1,56,550/- and total Cenvat credit taken on three machines at that time was Rs. 2,65,048/-. These three machines after about 5 years' use were disposed off and by the respondent during April-June'05 period. One machine was sold in Rs. 1 lakh on 22-4-05 and the other two machines were sold in Rs.1,75,000/- in June'05 and the total duty paid is at the rate of 16% on the transaction value i.e. Rs. 44,000/-. According t....
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.... to be reversed was the duty payable on the depreciated value. During the period prior to 1-4-2000, Rule 57S(2)(b) of Central Excise Rules, 1944, provided that if cenvated capital goods are cleared after being used, the manufacturer who had taken the capital goods Cenvat credit shall be required to pay at the time of removal, an amount reduced by 2.5% as per the provision of Rule 57S(1)(ii), of the credit originally taken for each quarter of a year or part thereof from the date of taking the credit (i.e. 10% for every year of use) and Rule 57S(2)(c) provided that if capital goods are cleared as waste and scrap, the manufacturer shall pay an amount equal to duty leviable on transaction value. However, w.e.f. 1-3-03, sub-rule (4) of Rule 3 of Cenvat Credit Rules, 2002 [corresponding to Rule 3(5) of Cenvat Credit Rules, 2004], was substituted by a new rule according to which when the inputs or capital goods are cleared as such from a factory, a manufacturer will have to pay an amount equal to the credit availed in respect of such inputs or capital goods. When Cenvat Credit Rules, 2002 were replaced by the Cenvat Credit Rules, 2004, sub-rule (5) of the Rule 3 contained the same p....
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....n to the manufacture of finished products and when unused inputs are cleared as such, full Cenvat credit originally taken in respect of them would be required to be reversed. But, unlike inputs, the 'capital goods' get used up over a period of time. The capital goods loose their identity when the same have become totally unserviceable and unfit for further use and have to be scrapped. But: between the unused stage and fully scrapped stage, the capital goods are still identifiable as capital goods. Tribunal in case of CCE, Ludhiana v. Nahar Fibres reported in 2007 (220) E.L.T. 855, has held that the expression - "as such" in Rule 3(4) of the Cenvat Credit Rules, 2001/2002, which deals with both inputs or capital goods, is capable of being construed so as to refer only to the identity of such goods i.e. when these are capital goods, they remain such capital goods at the time of removal. A Larger Bench of the Tribunal in the case of Modernova Plastyles Pvt. Ltd. v. CCE, Raigad (supra) has held that the expression "as such" in Rule 4(5)(a) and Rule 3(a)(c) of the Cenvat Credit Rules, 2004 means without any addition, modification or alteration, it does not have any connection with the g....
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....the modifications made are mere corrections of careless language and really give the true meaning. When the main object and intention of a statute are clear, it must not be reduced to a nullity by the draftmans' unskilfulness or ignorance of the law, except in a case of necessity or the absolute intractability of the language used". This passage has been quoted with approval by Hon'ble Supreme Court in the case of Tirath Singh v. Bachitta Singh reported in AIR 1955 SC 830. Thus when adhering to the ordinary meaning of the words used and to the grammatical construction, leads to any manifest absurdity or repugnance, the language of the statute can be modified to avoid such inconvenience. 6.3 Hon'ble Supreme Court in a recent case of CCE v. M/s. Gujarat Narmada Fertilizers Co. Ltd. reported in 2009 (240) E.L.T. 661 (S.C.) = 2009 TIOL 96-SC-CX has observed that "litigation on interpretation of CENVAT Credit Rules has risen on account of various conflicting decisions given by the various Benches of CESTAT, the reason being that the Rules have not been properly drafted." The absence of provisions during the period from 1-3-03 to 12-11-07 in respect of quantum of Cenvat credit to be re....
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.... of Cenvat Credit Rules, 2002, must be interpreted as - "shall pay an amount equal to the credit availed in respect of such capital goods, reduced by an amount in proportion to the period of use", as only by adopting this interpretation, Rule 3(5) of Cenvat Credit Rules, 2004/Rule 3(4) of Cenvat Credit Rules, 2002 would make sense in respect of removal of cenvated capital goods after being used. As discussed in para 6.1 above, for determining the abatement on account of period of use, the formula prescribed in old Rule 57S(2)(b) of Central Excise Rules, 1944 as well as in 2nd proviso to Rule 3(5) of Cenvat Credit Rules (introduced w.e.f. 13-11-07) can be adopted. 7.In case of Cummins India Ltd. v. CCE, Pune-II reported in 2007 (219) E.L.T. 911, capital goods received in 1996, in respect of which Cenvat credit had been taken, were cleared after about 7 years' use in March, 2003 at much reduced value on payment of an amount equal to duty on the transaction value, instead of the Cenvat credit originally taken, as demanded by the Department. The Tribunal in this case, set aside the demand for differential amount. The Tribunal's judgment, has been upheld by Hon'ble Bombay High Court vi....