2006 (3) TMI 493 - AT - Central Excise

Cenvat/Modvat - Capital goods not installed and used - HELD THAT - In the present case, admittedly the entire Captive Power Plant II has been sold, along with the disputed Modvatable capital goods. The effect of such sale would be that the same have been removed from the appellant s factory. The ground plan has been changed and demarcation has been made and as such it cannot be said that merely because no fencing or boundary wall has been created physically between the two units, the Power Plant should be considered as being within the appellant s factory. We note the decisions relied upon by the appellant Strong reliance has been made to the Tribunal s decision in the case of Jammu Auto Industries v. CCE, 2000 (9) TMI 146 - CEGAT, NEW DELHI , observed that in terms of sub-rules (20) and (21) of Rule 57D, the question of application of Rule 57F(2) does not arise inasmuch as the said sub-rules are self-contained and covers transfer of the credit lying in the books of the seller. However, we find that in that case the issue before the Bench was as regards transfer of the credit on change in ownership of the factory. In the present case, the credit earned by the first appellant cannot be transferred to the second inasmuch as the second unit is only manufacturer of electricity, which is not liable to pay Central Excise duty. We would like the dispute to be resolved by a Larger Bench. The Registry is therefore directed to place the papers before the Hon ble President for constituting a Larger Bench. However, it is made clear that the other related issues as regards the valuation of the Rotors/insurance spares or imposition of penalty are left open for decision, after the decision by the Larger Bench on the main disputed issue.

Summary

Issues:
1. Interpretation of Rule 57AB(1C) of the Central Excise Rules, 1944 regarding reversal of Modvat credit on sale of capital goods.
2. Determining whether the sale of Captive Power Plant, containing capital goods on which Modvat credit was availed but not used in the factory, constitutes removal of capital goods.
3. Analysis of the legal position on the concept of "removal" under Rule 57AB(1C) in the context of the sale of a unit with capital goods.
4. Examination of Tribunal decisions on similar cases and their impact on the interpretation of the term "removal" under Rule 57AB(1C).

Detailed Analysis:
1. The case involved M/s. Rourkela Steel Plant, which availed Modvat credit on capital goods but later sold the Captive Power Plant, including the unused capital goods, to another entity. The issue was whether this sale constituted "removal" under Rule 57AB(1C) necessitating the reversal of Modvat credit.

2. The appellant argued that the sale did not amount to physical removal as the Power Plant remained within their factory premises despite the change in ownership. They contended that the conditions for the use of capital goods in the manufacturing process were still satisfied.

3. The adjudicating authority held that the sale of the Captive Power Plant constituted removal of the capital goods, as evidenced by the change in ground plan and exclusion of the plant from the factory. Reference was made to Rules 9 and 49 of the Central Excise Rules, emphasizing that even captive use within the same factory constituted removal for duty payment purposes.

4. The Tribunal analyzed various decisions, including CCE, Jaipur v. Shri Prithvi Rolling Mills Pvt. Ltd., highlighting that non-use of capital goods in the factory and their transfer to a new unit constituted removal. Contrary views from cases like Jammu Auto Industries v. CCE, Indore and Tata Motors Pvt. Ltd. v. CCE, Jamshedpur were also considered, leading to the decision to refer the matter to a Larger Bench for resolution due to conflicting interpretations.

5. The Tribunal emphasized that the legislative intent behind Modvat provisions required the reversal of credit when capital goods were not used by the original assessee. The case raised significant questions regarding the interpretation of "removal" under Rule 57AB(1C) and its application in situations involving the sale of units containing capital goods.

6. The decision to refer the matter to a Larger Bench indicated the complexity and importance of resolving the dispute surrounding the interpretation of "removal" in the context of Modvat credit reversal on the sale of capital goods, particularly when ownership changes but physical relocation does not occur.