2016 (8) TMI 37 - AT - Central Excise

Reversal of credit taken on capital goods - removal of capital goods after use of 10 years - period from 1.9.2004 to 13.11.2007 - Held that - the appellants are only required to reverse the credit calculated in terms of CBE&C Circular cited above. If that is a case then the liability of the appellants is limited to around ₹ 10,000/- whereas they have already reversed over ₹ 97,000/-. In these circumstances, no demand can be sustained against the appellants. The appeal is accordingly allowed. - Decided in favor of assessee.

Summary

Issues involved:
Recovery of credit availed on capital goods cleared after use, interpretation of rule 3(5) of the Cenvat Credit Rules, applicability of reversal of credit on cleared capital goods, differing views of High Courts and Tribunal decisions on the matter.

Analysis:
The case involved the appellants, M/s Kisan Irrigations Ltd., who availed credit on certain capital goods in 1996 and cleared the same in 2006 after 10 years, leading to a notice seeking recovery of the entire credit availed in 1996 under rule 3(5) of the Cenvat Credit Rules. The appellant relied on the Tribunal's decision in Cummins India Ltd. case, upheld by the Bombay High Court, stating that no provision existed for reversing credit on capital goods cleared after use during a specific period. The Tribunal emphasized that requiring reversal of credit when capital goods were removed as old and unserviceable would defeat the purpose of the credit facility for capital goods.

The appellant argued that different High Courts held conflicting views on the matter, and the Tribunal's Larger Bench decision in Navodhaya Plastic Ind. Ltd. case supported following the Madras High Court's decision in Commissioner of Central Excise, Salem Vs. Rogini Mills Ltd. case. According to the Madras High Court decision, when capital goods are cleared after use, credit should be reversed at the depreciated value as per a specific circular. The appellant contended that following this method would result in a liability of around &8377;10,000, significantly less than the &8377;97,000 already paid at the time of clearance.

On the other hand, the Revenue argued that clearance of used capital goods should be treated as clearance of goods as such, necessitating the reversal of the entire credit taken on the capital goods. The Tribunal, after considering the submissions, referred to the Navodhaya Plastic case, emphasizing the need to prevent abuse of the Cenvat credit scheme by allowing assessees to bring in capital goods for a short period and then remove them without reversing any credit. Consequently, the Tribunal upheld the decision to follow the Madras High Court ruling, limiting the appellants' liability to around &8377;10,000, which had already been exceeded by the amount reversed. Therefore, no demand for duty could be sustained against the appellants, and the penalty and interest were set aside.