2013 (4) TMI 246 - AT - Central Excise

Removal of capital goods as such to another units - Reversal of Cenvat Credit - whether the main unit was liable to reverse the Cenvat credit taken on the capital goods at the time of its clearance under delivery challan to the other unit. Held that - Admittedly, all the units are separately registered with the Department. Therefore, all of them are registered manufacturers. Each unit, therefore, has to maintain the relevant statutory records including Cenvat credit accounts. Each unit is entitled to take Cenvat credit and is liable to pay duty of excise on the manufactured products. In this scenario recognized by Central Excise law, if one unit clears its capital goods as such to another, it has to reverse the CENVAT credit taken thereon. of course, the recipient unit can take such credit. Ultimately, the situation emerges as revenue neutral. On the facts of the present case as already discussed, there is a revenue-neutral situation and, therefore, the Department will not be justified in enforcing the subject demand of duty against the appellant. - Decided in favor of assessee.

Summary

Issues:
Appeal against demand of duty on a D.G. set - Whether main unit liable to reverse CENVAT credit on capital goods at time of clearance to another unit - Revenue neutrality.

Analysis:
1. The appeal was filed against the demand of duty on a D.G. set by the main unit of the appellant-company to another unit. The main unit cleared the D.G. set under a delivery challan to the other unit, leading to the question of whether the main unit was required to reverse the CENVAT credit taken on the capital goods at the time of clearance. The adjudicating authority ruled in favor of the appellant, but the Commissioner (Appeals) held that the main unit should have reversed the CENVAT credit, resulting in the demand of duty equivalent to the credit taken.

2. The appellant's consultant argued that only the main unit cleared final products on payment of duty, while other units performed job work and supplied semi-finished products to the main unit. Despite being separately registered, the job-worker units were not independent manufacturers and did not maintain separate CENVAT credit accounts. The consultant contended that the demand should be set aside due to revenue neutrality and that denying CENVAT credit on procedural grounds was unjustifiable.

3. The consultant cited legal precedents to support the appellant's position, emphasizing the importance of revenue neutrality in such cases. However, the Deputy Commissioner (AR) contended that the CENVAT Credit Rules mandated the reversal of credit on capital goods at the time of removal from the factory, holding the main unit liable for duty equal to the credit taken. Reference was made to a relevant case to support this argument.

4. Both sides agreed on the principle of revenue neutrality. The Tribunal noted that all units were engaged in manufacturing activities and were separately registered, entitling them to maintain CENVAT credit accounts. The requirement to reverse credit on capital goods when cleared to another unit was highlighted, ensuring revenue neutrality as the recipient unit could avail the credit.

5. The Deputy Commissioner suggested that the appellant could opt for a single registration for all units, eliminating the need for separate records and simplifying duty payment. While acknowledging this as an ideal option, the Tribunal observed that such a consolidation had not been implemented yet. Despite the revenue-neutral nature of the situation, the Department was not justified in enforcing the duty demand against the appellant, leading to the appeal being allowed and the demand set aside.