2013 (11) TMI 980 - AT - Central Excise

Inputs cleared as waste and scrap Not used in the manufacture of goods - Cenvat credit found short to be reversed Held that - The invoices mentioned the clearances as waste/scrap, the fact remains that these are the Cenvat credit availed inputs which had been cleared as such, without being used in manufacture for the reason the same had become obsolete - the clearances of obsolete inputs have to be treated as the clearances of cenvated inputs, as such, and the amount payable in respect of the same would be governed by the provisions of Rule 3 (4) of Cenvat Credit Rules in force at that time - Following EICHER TRACTORS Versus COMMISSIONER OF CENTRAL EXCISE, JAIPUR 2005 (9) TMI 340 - CESTAT, NEW DELHI - During the period of dispute when an assessee cleared Cenvat credit availed inputs as such, he was required to reverse the credit equal to the duty of excise on the basis of assessable value as had been determined by the original manufacturer at the time of removal of the goods i.e. the credit originally taken, not the duty on the transaction value at the time of sale of the Cenvat credit availed inputs. The liability of the assessee at the time of removal of the Cenvat credit availed inputs as obsolete inputs or waste, which are nothing but the inputs cleared as such without having been used, would be the Cenvat credit originally taken Thus, the duty demanded is correct - As regards, the demand of credit on the inputs found short, the same has also been correctly upheld on merits as these inputs have not been used in manufacture. Invocation of Extended Period of Limitation Conflicting decisions Held that - The appellant have paid the amount strictly going by the wordings of Rule 3 (4) during the period of dispute, according to which on removal of cenvated inputs as such, an amount equal to duty on the transaction value was payable With regard to the issue, there were conflicting decisions and for this reason Following Continental Foundation Joint Venture vs. CCE, Chandigarh - I 2007 (8) TMI 11 - SUPREME COURT OF INDIA when there is scope for entertaining doubt on account of conflicting judgments of the Tribunal, extended period under proviso to Section 11A (1) cannot be invoked Thus, the short payment of the amount payable under Rule 3 (4) of the Cenvat Credit Rules was a deliberate act on the part of the assessee - the longer limitation period in the case is not invokable - during visit of the audit team, all the information had been made available by the assessee on the basis of which only the Department had detected this short payment and subsequently all the information for quantification of the duty has been furnished by the appellant - the extended period is not invokable - order is not sustainable on limitation. Decided in favour of assessee.

Issues Involved:
1. Reversal of Cenvat credit for obsolete inputs cleared as waste.
2. Applicability of Rule 3(4) of Cenvat Credit Rules, 2002.
3. Limitation period for issuing show cause notice.
4. Imposition of penalty under Section 11AC.

Detailed Analysis:

1. Reversal of Cenvat Credit for Obsolete Inputs Cleared as Waste:
The appellant, a manufacturer of television sets, had written off certain raw materials and cleared them as obsolete parts/waste during August and September 2002. The department argued that the Cenvat credit originally taken on these inputs should have been reversed, as these inputs were not used in the manufacture of final products. The appellant contended that they had paid duty on the transaction value of the obsolete inputs as per Rule 3(4) of the Cenvat Credit Rules, 2002, which was in force at that time. The Tribunal held that the clearances of obsolete inputs should be treated as clearances of cenvated inputs "as such," and the amount payable should be governed by Rule 3(4). The Tribunal referenced the Larger Bench decision in the case of CCE, Vadodara vs. Asia Brown Boveri Ltd., which required the reversal of the credit originally taken. Thus, the demand of Rs. 22,20,259/- was upheld on merits.

2. Applicability of Rule 3(4) of Cenvat Credit Rules, 2002:
Rule 3(4) of the Cenvat Credit Rules, 2002, required the manufacturer to pay an amount equal to the duty on the transaction value when inputs or capital goods on which Cenvat credit had been taken were removed "as such" from the factory. The Tribunal noted that the appellant had paid the amount strictly in accordance with the provisions of Rule 3(4) during the period of dispute. However, the Larger Bench decision clarified that the liability was to restore the credit originally taken, not the duty on the transaction value at the time of sale. Therefore, the Tribunal concluded that the appellant was required to reverse the credit originally taken.

3. Limitation Period for Issuing Show Cause Notice:
The show cause notice was issued on 24/08/04, more than a year after the department had received all the relevant information from the appellant under a letter dated 17/06/03. The department invoked the extended period under the proviso to Section 11A(1), alleging suppression of facts. The Tribunal observed that there were no findings indicating deliberate short payment by the appellant. The dispute was related to the interpretation of Rule 3(4), and conflicting judgments existed on this issue. The Tribunal referenced the Apex Court's decision in the case of Continental Foundation Joint Venture vs. CCE, Chandigarh - I, which held that extended period cannot be invoked when there is scope for doubt due to conflicting judgments. Therefore, the Tribunal held that the extended period was not invokable, and the demand was time-barred.

4. Imposition of Penalty under Section 11AC:
The Additional Commissioner had imposed a penalty equal to the amount of Cenvat credit demand under Section 11AC. However, the Tribunal found no evidence of fraud, collusion, willful misstatement, or suppression of facts by the appellant. The Tribunal noted that the appellant had provided all the required information during the audit and had paid the amount based on their interpretation of Rule 3(4). Given the conflicting judgments and absence of deliberate intent to evade duty, the Tribunal held that the penalty under Section 11AC was not justified.

Conclusion:
The Tribunal set aside the impugned order, holding that the demand was time-barred and the penalty was not sustainable. The appeal was allowed, and the order was pronounced in the open court.

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