2016 (6) TMI 827 - AT - Central Excise

Conversion of DTA unit into 100% EOU - reversal fo Cenvat Credit attributable to the capital goods and inputs transferred to their 100% EOU within the factory premises or otherwise. - Held that - inputs and capital goods were within the factory premises of the appellant even after carving out of the EOU by them. Provisions of rule 3(4) of the Cenvat Credit Rules are attracted only when the MODVAT/CENVAT Credit availed inputs or capital goods are removed from the factory premises is undisputed. The adjudicating authority has held that through two different legal entities and two different registrations have been given one as a DTA and other as a 100% EOU hence it should be considered as removal of capital goods and inputs. We do not agree to this proposition as it is undisputed that the EOU is also named as Behr India Ltd. (100% EOU) and Balance-sheet of the appellant is one and the same though the legal status of the EOU is bit different than the DTA it cannot be said that both are separate units. In our view this observation of the adjudicating authority cannot withstand scrutiny of the law - appellant has made out a case in his favour - Demand set aside - Decided in favor of assessee.

Summary

Issues Involved:
1. Whether the appellant is required to reverse the MODVAT/CENVAT Credit availed on capital goods and inputs when transferred to a 100% EOU within the factory premises.

Analysis:
Issue 1: Reversal of MODVAT/CENVAT Credit on transfer to 100% EOU
The appellant, a Central Excise registered assessee manufacturing Air Conditioner kits, transferred capital goods and inputs to a 100% EOU within the factory premises. The Revenue contended that the appellant should reverse the MODVAT/CENVAT Credit on such transfers. The lower authorities upheld this view, citing Rule 3(4) of the Cenvat Credit Rules. However, the appellant argued that the EOU and DTA units were not separate entities, as seen in previous judgments like Sandvik Asia Ltd. and Sandoz Pvt. Ltd. The Tribunal analyzed the situation and found that the transferring of goods to the appellant's 100% EOU did not necessitate the reversal of CENVAT Credit. The Bench highlighted that the EOU's establishment did not alter the appellant's works or statutory jurisdiction, maintaining eligibility for CENVAT Credit. The Tribunal emphasized the revenue neutrality of the situation, aligning with previous decisions and overturning the lower authorities' findings.

The Tribunal rejected the Revenue's argument that the transfer to the EOU constituted removal of duty-paid goods, referencing judgments like Associated Cement Co. Ltd. and Pure Drinks Ltd. The Tribunal differentiated these cases, emphasizing that the appellant's scenario involved goods remaining within the factory premises. The Tribunal also distinguished the case of J.K. Paper Mills, where goods were sold to another company, unlike the present situation. Ultimately, the Tribunal held in favor of the appellant, setting aside the impugned order and allowing the appeal with appropriate relief as per the law.

In conclusion, the Tribunal's detailed analysis focused on the interpretation of Rule 3(4) of the Cenvat Credit Rules in the context of transferring goods to a 100% EOU within the factory premises. By considering precedents, statutory provisions, and the specific circumstances of the case, the Tribunal determined that the appellant was not obligated to reverse the MODVAT/CENVAT Credit on such transfers, ensuring a fair and just outcome in line with established legal principles.