2007 (8) TMI 597 - AT - Central Excise

Summary

Issues:
1. Appeal against demand for reversal of credit on removal of capital goods.
2. Interpretation of Rule 3(5) of the Cenvat Credit Rules, 2004.
3. Application of the decision in Salona Cotspin Ltd. v. CCE, Salem.
4. Requirement of reversing credit on removal of capital goods 'as such'.
5. Applicability of the decision in Madura Coats Ltd. v. Tirunelveli.

Analysis:

Issue 1: The appeal was filed against the demand for reversal of credit on the removal of capital goods. The appellant, M/s. Lakshmi Machine Works, Coimbatore, had received a 'speed frame lapping machine' in 1997 and took capital goods credit of Rs. 1,37,581. After using the machine for 8 years, they cleared it by reversing the credit to the tune of Rs. 42,400. The Commissioner (Appeals) demanded a differential duty of Rs. 95,181 along with interest and imposed a penalty of Rs. 10,000 under Rule 15(1) of the Cenvat Credit Rules, 2004.

Issue 2: The interpretation of Rule 3(5) of the Cenvat Credit Rules, 2004 was crucial in this case. The rule states that when capital goods on which Cenvat credit was taken are removed 'as such' from the factory, an amount equal to the credit availed must be paid. The Commissioner (Appeals) upheld this provision, leading to the demand for differential duty and penalty.

Issue 3: The appellant argued that the provisions regarding the reversal of credit on removal of capital goods 'as such' had not changed with the introduction of the Cenvat Credit Rules, 2004. They relied on the decision in Salona Cotspin Ltd. v. CCE, Salem, which held that 'used capital goods' were not 'capital goods as such', supporting their stance against the demand for reversal of credit.

Issue 4: The requirement of reversing credit on the removal of capital goods 'as such' was a central point of contention. The Tribunal's decision in Madura Coats case established that no credit reversal was necessary when capital goods were removed after being used, as was the situation in the present case where the appellants had used the machinery for 8 years before clearing it.

Issue 5: The applicability of the decision in Madura Coats Ltd. v. Tirunelveli was crucial to the final judgment. The Tribunal found that as per the Madura Coats case, the appellants were not obligated to reverse any credit since they had not removed the capital goods 'as such', but after using them for a substantial period. Therefore, the impugned order demanding differential credit, interest, and penalty was set aside, and the appeal was allowed.

In conclusion, the Tribunal ruled in favor of the appellant, M/s. Lakshmi Machine Works, Coimbatore, based on the interpretation of the Cenvat Credit Rules, 2004, and the application of relevant precedents like Salona Cotspin Ltd. and Madura Coats Ltd. The decision highlighted the distinction between removing capital goods 'as such' and after using them, emphasizing that no credit reversal was required in the latter scenario.