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2012 (6) TMI 340 - HC - Central ExciseDuty liability - Sale of used capital goods - applicability of Rule 3(5) of the CENVAT Credit Rules, 2004 - revenue contended duty liability together with interest and penalty on cenvat credit taken on capital goods - Held that - Appellant has used the capital goods in its factory for a period of 2 to 4 years, before selling it to M/s. HIPL. They cannot therefore be stated to be sold as such capital goods. They were sold as used capital goods. Hence, Rule 3(5) has no applicability. Appellant is not liable to the payment of duty, interest or penalty. In view of aforesaid, the goods are not liable to be confiscated. They are, therefore, liable to be released without payment of any redemption fine and any penalty under Rule 25 of the Central Excise Rules, 2002 - Decided in favor of assessee.
Issues Involved:
1. Liability to pay tax, penalty, and interest on Cenvat credit for capital goods sold under Rule 3(5) of the Cenvat Credit Rules, 2004. 2. Interpretation of the term "as such" in Rule 3(5) concerning used capital goods. 3. Liability for redemption fine and penalty under Section 34 of the Central Excise Act and Rule 25 of the Central Excise Rules, 2002. Issue-Wise Detailed Analysis: 1. Liability to Pay Tax, Penalty, and Interest on Cenvat Credit: The primary question was whether the appellant was liable to pay tax, penalty, and interest on the Cenvat credit taken on capital goods subsequently sold. The appellant, engaged in manufacturing chewing tobacco, had availed Cenvat credit on capital goods and later sold these goods without paying excise duty, arguing that the goods were used and thus did not require reversal of Cenvat credit under Rule 3(5) of the Cenvat Credit Rules, 2004. The Central Excise Authorities contended that the appellant had removed the capital goods without paying the equivalent amount of Cenvat credit availed, leading to a show-cause notice and subsequent adjudication by the Commissioner (Central Excise) ("CCE"), who imposed duty, interest, and penalties on the appellant. The CESTAT upheld the CCE's order, stating that the obligation to pay duty or reverse the credit applied to capital goods removed in June and July 2007, before the amendment on 13.11.2007, which introduced a concessional rate for used capital goods. 2. Interpretation of the Term "As Such" in Rule 3(5): The Tribunal's interpretation of "as such" included used capital goods, meaning that even used capital goods retained their character and required reversal of Cenvat credit upon removal. This interpretation was challenged by the appellant, citing the Punjab & Haryana High Court's decision in Commissioner of C. Ex., Chandigarh v. Raghav Alloys Ltd., which held that "as such" referred to unused capital goods. The High Court agreed with the appellant, referencing the Bombay High Court's judgment in Cummins India Ltd. v. CCE, which supported the view that used capital goods are not removed "as such" and thus do not require reversal of Cenvat credit. The High Court concluded that the appellant was not liable to pay excise duty under Rule 3(5) when removing used capital goods. 3. Liability for Redemption Fine and Penalty: The second appellant, Harsh International (Khaini) Pvt. Ltd., faced a substantial question of law regarding liability for redemption fine and penalty. Since the High Court held that there was no liability to pay excise duty on used capital goods, it followed that the goods were not liable for confiscation, and thus no redemption fine or penalty was applicable. The High Court directed that the seized capital goods be returned to the appellant without payment of any redemption fine, answering the question of law in favor of the assessee. Conclusion: The High Court allowed both appeals, ruling that the appellants were not liable to pay duty, interest, or penalties on the used capital goods, and directed the return of confiscated goods without any redemption fine. The substantial questions of law were answered in favor of the appellants, with no order as to costs.
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