2014 (4) TMI 1142 - AT - Central Excise

Reversal of CENVAT credit - Payment was made on the depreciated value of the capital goods - whether on removal of used capital goods, the appellant is required to reverse the entire Cenvat credit originally taken by him at the time of receipt of the capital goods or not? - Held that - The issue is no more res integra and stands settled by various decision of the Tribunal as also of High Court. Reference can be made to Hon ble Delhi High Court s decision in the case of Harsh International (Khaini) Pvt. Ltd. Vs. CCE (2012 (6) TMI 340 - DELHI HIGH COURT ) and Larger Bench decision in the case of CCE Hyderabad Vs. Novodhaya Plastic Industries Ltd. (2013 (12) TMI 82 - CESTAT CHENNAI ). It stands held that the requirement of reversal of entire credit is only when the capital goods are removed as such . Where the same are cleared after continuous use in a number of years, the depreciated value in terms the board s circular No. 643/34/2002-Ex. Dated 1.7.2002 prescribing deduction of 2.5% of credit for each quarter of use of machine year from date of taking of Cenvat credit is required to be followed. Thus set aside the impugned order and remand the matter to the original adjudicating authority for arriving at the depreciated value of the capital goods in question inasmuch as nowhere find as to how the depreciated value stands arrived at by the appellant. However, do not find it a case of imposition of penalty the same is accordingly set aside.

Summary

Issues:
1. Reversal of Cenvat credit on removal of used capital goods.
2. Interpretation of Rule 3(5) of Cenvat Credit Rules, 2004.
3. Application of depreciated value for used capital goods.

Analysis:

The appellant, engaged in manufacturing fuel injection pumps, transferred used capital goods to a sister unit after sufficient use. The Revenue contended that the appellant must reverse the entire Cenvat credit availed on the capital goods cleared. A Show Cause Notice was issued, leading to confirmation of a demand and imposition of a penalty by the original adjudicating authority, which was upheld by the Commissioner (Appeals).

The central issue in the appeal was whether the appellant is required to reverse the entire Cenvat credit on removal of used capital goods. The Tribunal clarified that Rule 3(5) of Cenvat Credit Rules applies to removal of capital goods as such, not used capital goods. Citing precedents like the Delhi High Court's decision in Harsh International (Khaini) Pvt. Ltd. Vs. CCE and the Larger Bench decision in CCE Hyderabad Vs. Novodhaya Plastic Industries Ltd., it was established that the requirement of reversing entire credit is applicable only when capital goods are removed 'as such'.

It was held that for capital goods cleared after continuous use, the depreciated value should be calculated as per the board's circular prescribing deduction of 2.5% of credit for each quarter of use. The Tribunal set aside the impugned order and remanded the matter to determine the depreciated value of the capital goods, as it was not clear how the appellant arrived at this value. However, no penalty was imposed in this case, and the appeal was disposed of accordingly.