2015 (7) TMI 267 - HC - Central Excise

Reversal of CENVAT Credit - leasing out the power plant with ancillary equipments to KPPL without removing the capital goods - Held that - Rule 3 (5) only speaks about the removal of goods under cover of invoice referred to in Rule 9 on inputs or capital goods on which cenvat credit has been taken and if such goods are removed as such from the factory or premises of the provider of output service, the manufacturer of the final products or provider of output service, shall be liable to pay an amount equal to the credit availed in respect of such inputs or capital goods. There is no removal of goods under cover of invoice as provided under Rule 9 of the Cenvat Credit Rules, 2004 and there is nothing in Rule 3 (5) of the Cenvat Credit Rules, 2004 to invoke the deeming fiction as insisted by the adjudicating authority. The language of Rule 3 (5) is plain and simple. When the inputs or capital goods on which cenvat credit has been taken are removed as such from the factory, then subject to compliance of other requirements, the credit availed in respect of inputs on capital goods shall be paid. This situation has not arisen in the present case, as no invoice has been issued for removal of the goods from the factory premises and, therefore, the said rule is not applicable to the case of the assessee. - no reason to interfere with the well considered findings of the Tribunal on the questions of law as raised - Decided against Revenue.

Issues Involved:

1. Whether the inputs and capital goods used in a power plant and on which Cenvat credit of duty had been taken could be deemed as removed as such in terms of Rule 3 (5) of the Cenvat Credit Rules, 2004, when leased by the assessee.
2. Whether on leasing the power plant, the assessee must pay an amount equal to the credit availed in respect of such inputs or capital goods under Rule 3 (5) of the Cenvat Credit Rules, 2004.
3. Whether the power plant and the inputs, capital goods, and input services used in the power plant could be considered an integral part of the factory of the assessee to be eligible inputs, capital goods, and input services under Rule 2 (a), Rule 2 (k), and Rule 2 (l) of the Cenvat Credit Rules, 2004, even after the lease.
4. Whether the assessee is liable to pay an equal amount of penalty under Section 11AC of the Central Excise Act, 1944 for consciously suppressing the fact of removal of the power plant by way of lease.

Issue-Wise Detailed Analysis:

1. Deeming Removal of Inputs and Capital Goods on Leasing:

The Tribunal concluded that the leasing of the power plant by the assessee to another company did not constitute 'removal of capital goods as such' from the factory. The Tribunal relied on the decision in BLIT Industrial Packaging Company Ltd. v. CCE, Salem, which held that there was no physical removal of capital goods from the factory, and thus, Rule 3 (5) of the Cenvat Credit Rules, 2004, was not applicable. The Tribunal emphasized that no invoice was issued for the removal of capital goods, as required under Rule 11 (1) of the CCR, 2002.

2. Payment of Amount Equal to Credit Availed on Leasing:

The Tribunal held that since there was no physical removal of capital goods from the factory premises, the provisions of Rule 3 (5) of the CCR, 2004, which mandate payment of an amount equal to the credit availed, were not applicable. The Tribunal's decision was supported by the Supreme Court's ruling in Shyam Oil Cake Ltd. v. CCE, Jaipur, which stated that deeming provisions must be explicitly stated in the language of the provision, and no such deeming provision existed in Rule 3 (5).

3. Eligibility of Inputs, Capital Goods, and Input Services Post-Lease:

The Tribunal found that the power plant remained an integral part of the assessee's factory even after the lease, as it continued to supply electricity to the cement manufacturing plant of the assessee. The Tribunal noted that all raw materials required for electricity generation were supplied by the assessee, and the entire electricity generated was used by the assessee. Therefore, the inputs, capital goods, and input services used in the power plant remained eligible under Rule 2 (a), Rule 2 (k), and Rule 2 (l) of the CCR, 2004.

4. Liability for Penalty under Section 11AC of the Central Excise Act, 1944:

The Tribunal did not find sufficient grounds to impose a penalty under Section 11AC of the Central Excise Act, 1944. The Tribunal concluded that there was no suppression of facts by the assessee, as the department was informed about the setting up of the captive power plant and the revised ground plan. The Tribunal also noted that the assessee had a bona fide belief that they were entitled to avail the credit, irrespective of the lease agreement with KPPL.

Conclusion:

The High Court upheld the Tribunal's decision, agreeing that there was no removal of goods as such from the factory premises and that Rule 3 (5) of the CCR, 2004, was not applicable. The Court also concurred with the Tribunal's interpretation that the power plant remained an integral part of the assessee's factory, and thus, the inputs, capital goods, and input services used were eligible for Cenvat credit. The Court dismissed the appeals, finding no merit in the Revenue's arguments and no reason to interfere with the Tribunal's well-considered findings.

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