2010 (4) TMI 665 - AT - Central Excise

Cevaat credit removal of capital goods - SCN issued - manufacturer of the final products shall pay an amount equal to the credit availed in respect of such capital goods Held that - removal of Cenvated capital goods after being used, only proportionate Cenvat credit depending upon the period of use, determined as per the formula prescribed in old Rule 57S(2)(c) of Central Excise Rules, 1944 / 2nd proviso to Rule 3(5) of Cenvat Credit Rules, 2004 (introduced w.e.f. 13-11-2007) would be required to be reversed, not the cenvat credit originally taken - if any depreciation on the value of the capital goods used, is to be allowed and proportionate cenvat credit is sought to be reversed disposed off accordingly

Summary

Issues:
1. Interpretation of Rule 3(5) of the Cenvat Credit Rules, 2004 regarding the reversal of Cenvat credit on the removal of capital goods.
2. Conflict between decisions of the Larger Bench and Division Bench on the issue of granting depreciation and proportionate reversal of credit.

Analysis:
1. The appeal involved a dispute regarding the application of Rule 3(5) of the Cenvat Credit Rules, 2004, concerning the reversal of Cenvat credit on the removal of capital goods by a manufacturer. The respondents, manufacturers of PVC pipes, had removed capital goods on which they had taken credits during 2004 and 2005. The adjudicating authority differentiated between 'removal of used capital goods' and 'removal of capital goods as such' and determined that the duty paid by the respondents based on the transaction value was correct. The Revenue challenged this decision, leading to an appeal before the Commissioner(Appeals), who upheld the view of the adjudicating authority.

2. The discussion in the case referred to the decision of the Larger Bench in Modernova Plastyles Pvt. Ltd. v. CCE, Raigad, where the issue of reversal of Cenvat credit on cleared capital goods was addressed. The Counsel for the respondents argued that the authorities should have considered granting depreciation on the value of the capital goods before requiring the reversal of credit. They relied on the decision in the case of CCE, Kanpur v. Geeta Industries (P) Ltd., which supported the benefit of depreciation before credit reversal. The Tribunal's decision in Geeta Industries (P) Ltd. specified the proportionate credit to be reversed based on the period of use, which conflicted with the decision of the Larger Bench. This conflict led to the Member referring the matter to the Hon'ble President for the constitution of a Larger Bench to resolve the issue of granting depreciation and proportionate credit reversal in such cases.

3. The Member acknowledged the conflict between the decisions of the Division Bench and Larger Bench, emphasizing the need for clarity on the aspect of granting depreciation on capital goods removed after use and the subsequent reversal of credit. The absence of specific provisions for reworking the value after depreciation raised the necessity for a Larger Bench to address the conflicting interpretations. The matter was referred to the Hon'ble President for further guidance and resolution by constituting a Larger Bench to settle the issues raised by the conflicting decisions.

This detailed analysis highlights the core issues, legal interpretations, and conflicting decisions involved in the judgment, providing a comprehensive overview of the case.