2007 (5) TMI 93 - AT - Central Excise

Cenvat/Modvat - Department contended that in terms of said Rule 3(4) for all removals of capital goods or inputs the credit has to be reversed as there is no linking provisions to allow exemption against the supplier under CT-3 certificate and accordingly penalty imposed on appellant - Held that department contention is not correct

Summary

Issues:
1. Whether the appellants are required to pay an amount equal to the credit availed in respect of capital goods under Rule 3(4) of Cenvat Credit Rules, 2002.
2. Whether the appellants should reverse the credit when supplying capital goods to a 100% Export Oriented Unit (E.O.U) against a CT-3 Certificate issued under Notification No. 22/2003-C.E.
3. Whether a penalty imposed on the appellants is justified.

Analysis:
1. The appellants received capital goods on payment of duty, took credit, and supplied them to an E.O.U without payment of duty or reversal of credit against a CT-3 Certificate. The authorities held that the appellants must pay an amount equal to the credit availed under Rule 3(4) of Cenvat Credit Rules, 2002. The original authority imposed a penalty, later reduced by the lower appellate authority while upholding the duty demand.

2. The appellants argued that the E.O.U could have obtained the capital goods without duty directly from the manufacturer. They purchased the goods, took credit, and supplied them to the E.O.U against a CT-3 Certificate. The appellants contended that no further reversal was necessary under Rule 3(4) when cleared against the CT-3 Certificate due to the exemption available under Notification No. 22/2003-C.E.

3. The Department supported the impugned order, stating that Rule 3(4) requires credit reversal for all removals of capital goods or inputs without linking provisions for exemption against the supplier under a CT-3 Certificate. After considering the arguments and relevant provisions, the Tribunal found that the purpose of Rule 3(4) is to recover the credit availed by a manufacturer when removing capital goods. However, since the cited Notification allows a 100% E.O.U to procure capital goods without duty against a CT-3 Certificate, a liberal approach is needed.

4. The Tribunal held that due to the valid CT-3 Certificate issued under Notification No. 22/2003-C.E, the appellants were not required to reverse the credit. The demand against them was set aside, and no penalty was necessary, leading to the appeal being allowed in favor of the appellants.