2010 (6) TMI 415 - AT - Central Excise

Demand cenvat credit credit availed on goods which are neither capital goods nor input in relation to manufacture of final product goods removed on payment of duty - credit taken was returned by paying duty at the time of clearance of items Held that - duty demandable from the appellant and the interest payable thereof and the consequent penalties can be only to the extent of the duty amount arising as difference, between the credit taken and the duty paid matter remanded back to the Adjudicating Authority

Summary

Issues:
- Availment of Cenvat credit on AC Motors/Generators
- Classification of AC Motors/Generators as inputs or capital goods

Analysis:
1. Availment of Cenvat credit on AC Motors/Generators:
The appellant, a manufacturer of electric stampings, availed Cenvat credit on AC Motors/Generators procured from a supplier. The lower authorities contended that these items were neither capital goods nor inputs used in the factory, leading to show cause notices for reversal of wrongly availed credit. The Adjudicating Authority upheld the demands and penalties, a decision affirmed by the Commissioner (Appeals). The appellant argued that they paid Central Excise duty on the cleared items and should only reverse the differential amount between credit taken and duty paid. Citing precedents, the appellant sought relief based on the Co-ordinate Bench and High Court decisions, emphasizing the duty payment on clearance of items.

2. Classification of AC Motors/Generators as inputs or capital goods:
The Departmental Representative asserted that the appellant was not entitled to Cenvat credit on AC Motors/Generators as they were not used in the manufacturing process. The DR argued that these items did not qualify as inputs or capital goods under Rule 3 of the Cenvat Credit Rules, 2004, necessitating the reversal of wrongly availed credit along with penalties and interest. Distinguishing previous tribunal and court decisions, the DR emphasized the inapplicability of those precedents to the present case. However, the Member (J) found that the appellant had incorrectly availed Cenvat credit but was only liable to pay the differential amount between credit taken and duty paid on the cleared items, as supported by the Principle Bench and High Court judgments.

3. Judicial Precedents and Decision:
The Member (J) relied on the decision of the Principle Bench in Sona Koyo Steering Systems Ltd. v. CCE, Delhi, where it was established that when duty is paid at the time of clearance, the requirement of reversing credit at the time of clearance of inputs is satisfied. The judgment of the High Court of Punjab & Haryana in CCE v. Rane NSK Steering Systems Ltd. further clarified that once excise duty is paid, there is no prejudice to the Revenue. Consequently, the Member (J) allowed the appeal on merits, remanding the matter for quantification of duty, interest, and penalties, limiting the liability to the differential amount between credit taken and duty paid on the cleared AC Motors/Generators.

In conclusion, the appellate tribunal ruled in favor of the appellant, directing the Adjudicating Authority to quantify the duty demandable, interest, and penalties solely based on the differential amount between the Cenvat credit taken and the duty paid on the AC Motors/Generators removed from the factory premises, in accordance with the Principle Bench and High Court decisions cited.