2007 (7) TMI 66 - AT - Central Excise

Cenvat/Modvat - Revenue contended that appellant cleared the discarded capital goods as such on which the appellant availed Cenvat credit without payment of duty - Held that no duty liability can imposed on appellant as per Rule 3(5)(a)

Summary

Issues:
1. Demand of duty on clearance of scrap valued at Rs. 5,94,241 as "old and discarded machinery"
2. Alleged breach of Rules 4, 8, and 10 of the Central Excise Rules, 2002
3. Applicability of duty on old and discarded capital goods cleared as scrap
4. Interpretation of Rule 3(4) of Cenvat Credit Rules, 2001
5. Introduction of sub-rule (5)(a) in Rule 3 of the Cenvat Credit Rules, 2004
6. Liability of payment on transaction value of scrap before and after 16-5-2005

Analysis:

1. The case involved a demand of duty on the clearance of scrap valued at Rs. 5,94,241 as "old and discarded machinery." The appellant, engaged in the manufacture of cane sugar and molasses, was alleged to have breached Rules 4, 8, and 10 of the Central Excise Rules, 2002 by not paying duty on the cleared goods, which were old and discarded capital goods. The Revenue claimed that the appellant did not provide information about the clearance of these goods without duty payment, leading to the detection by the audit party.

2. The appellant argued that the worn-out machinery pieces were discarded as scrap after losing their utility and were not dutiable at the relevant time. The appellant relied on a Tribunal decision to support their case. The counsel for the appellant contended that the clearance of old and discarded goods should not be considered as the clearance of capital goods "as such," citing previous judgments in similar cases.

3. The interpretation of Rule 3(4) of the Cenvat Credit Rules, 2001 was crucial in determining the liability for duty payment on the cleared goods. The introduction of sub-rule (5)(a) in Rule 3 of the Cenvat Credit Rules, 2004 was highlighted to establish the timeline for the imposition of duty on capital goods cleared as waste and scrap.

4. The judgment emphasized that the liability for payment on the transaction value of scrap arose only after the introduction of sub-rule (5)(a) in Rule 3 of the Cenvat Credit Rules, 2004 from 16-5-2005. It was clarified that before this provision, there was no duty liability on the appellant for the scrapped machinery parts, as they could not be considered capital goods "as such."

5. Ultimately, the impugned order confirming the demand of duty, penalty, and interest was set aside, and the appeal was allowed based on the absence of duty liability before the introduction of the relevant rule. The decision highlighted the distinction between capital goods cleared as waste and scrap before and after 16-5-2005, emphasizing the lack of duty payment obligation for the appellant in this case.