2011 (11) TMI 761 - AT - Central Excise

Summary

Issues: Interpretation of Rule 3(4) of Cenvat Credit Rules, 2002 regarding reversal of Cenvat credit on capital goods removed as such; Application of Notification No. 13/2003-C.E. (N.T.), dated 1-3-2003; Reference to Larger Bench decision in Modernova Plastics Pvt. Ltd. v. CCE, Raigad - 2008 (232) E.L.T. 29 (Tri. - LB); Liability of respondent-assessee to pay duty reversal and interest; Penalty imposition on respondent-assessee.

In this judgment by the Appellate Tribunal CESTAT AHMEDABAD, the issue revolved around the interpretation of Rule 3(4) of the Cenvat Credit Rules, 2002 concerning the reversal of Cenvat credit on capital goods removed as such. The respondent-assessee had cleared capital goods on which they availed Cenvat credit, discharging duty based on the invoice value. The Revenue contended that the Cenvat credit should be reversed as the goods were removed as such. The adjudicating authority upheld the demand and penalties, but the Commissioner (Appeals) set aside the order. The Revenue argued that the first appellate authority wrongly relied on non-existing provisions of the Cenvat Credit Rules during the relevant period, citing Notification No. 13/2003-C.E. (N.T.) and the Modernova Plastics Pvt. Ltd. case.

The first appellate authority referred to Rule 3(4) in its decision, emphasizing that the capital goods were not cleared as such, as per the Modvat Rules prevailing at the time. The circular clarified the duty payment after allowing depreciation. The Tribunal noted that the first appellate authority incorrectly reproduced the provisions of Rule 3(4) and clarified that there was no relevant notification on 15-9-2003. The Tribunal highlighted the actual provision of Rule 3(4) inserted by Notification No. 13/2003-C.E. (N.T.), dated 1-3-2003, stating that the manufacturer should pay an amount equal to the credit availed on such goods when removed as such.

The Tribunal agreed with the Revenue's argument, following the Modernova Plastics Pvt. Ltd. case, that the respondent-assessee must reverse the Cenvat credit on capital goods. Therefore, the Commissioner (Appeals) order was deemed incorrect, and the demand for duty reversal and interest was upheld. However, no penalty was imposed on the respondent-assessee as the issue required settlement by the Larger Bench. The impugned order was partially set aside, confirming the duty reversal and interest while upholding the setting aside of the penalty imposed on the assessee. The appeal was disposed of accordingly.