2010 (7) TMI 332 - AT - Central Excise

Cenvat Credit - capital goods cleared as such - capital goods cleared as such and would be required to reverse as per Rule 3(4) of Cenvat Credit Rules - capital goods stand used for a period of more than 7 to 8 years - Held that - interpretation given by the authorities below would lead to absurd results if an assessee is required to reverse the credit original availed by them at the time of receipt of the capital goods, when the said capital goods are subsequently removed as old, damaged and unserviceable capital goods - on merits also the appellant is not required to reverse the Cenvat Credit as held in the case of Cummins India Ltd. (supra), which is squarely applicable to this case - appeal is allowed

Summary

Issues:
Confirmation of duty demand, applicability of Rule 3(4) of Cenvat Credit Rules, 2002, period of limitation for issuing show-cause notice, interpretation of "as such" in relation to capital goods clearance, suppression of facts, merit of duty demand.

Confirmation of Duty Demand:
The appellant appealed against the confirmation of duty demand of Rs. 1,63,644/- along with interest and penalty. The case involved the appellant availing Cenvat credit on imported machinery in 1995 and subsequently clearing the same machinery after 8 years at a lower value, leading to a duty demand discrepancy. Both lower authorities upheld the duty demand, interest, and penalty. The appellant argued against the applicability of Rule 3(4) of the Cenvat Credit Rules, 2002 to their case.

Period of Limitation and Suppression of Facts:
The appellant contended that the show-cause notice issued in 2007 was beyond the period of limitation, as the machinery clearance was disclosed in their ER1 returns in 2003. The appellant highlighted that during an audit in 2006, the issue of clearance was raised, and the appellant responded, indicating no suppression of facts. The appellant argued that the demand was time-barred and that they had explained the short reversal of credit within the knowledge of the department.

Interpretation of "As Such" and Merit of Duty Demand:
The main contention revolved around the interpretation of "as such" concerning the clearance of capital goods. The appellant argued that the machinery sold after use should not be considered "as such" and relied on precedents to support their case. They cited cases where the Tribunal held that used capital goods need not have the credit reversed at the time of removal. The appellant emphasized that the demand was not sustainable on merit and that the provisions of Rule 3(4) of the Cenvat Credit Rules, 2002 did not apply to their case.

Judgment:
After considering arguments from both parties, the Tribunal found in favor of the appellant on both grounds. The Tribunal noted that the show-cause notice for contravention of Rule 3(4) of the Cenvat Credit Rules, 2002 was time-barred, as the appellant had disclosed the relevant information in their ER1 returns. Additionally, the Tribunal agreed with the appellant's interpretation of "as such" in relation to the clearance of capital goods, citing precedents that supported the appellant's position. Consequently, the appeal was allowed, and the impugned order was set aside on 7-7-2010.