2016 (9) TMI 728 - AT - Central Excise

Reversal of Cenvat Credit - sale of plant and machinery (capital goods) - contravention of the Rule 3(5) of Cenvat Credit Rule 2004 - Held that - the impugned order is set aside and the matter is remanded to the Adjudicating Authority to re-determine quantum of Cenvat Credit by taking into consideration the depreciation allowed under the relevant rules as laid down in Navodhaya Plastic Industries Ltd. s case (2013 (12) TMI 82 - CESTAT CHENNAI). - Decided partly in favor of assessee.

Summary

Issues:
- Reversal of Cenvat Credit on sale of capital goods
- Interpretation of Rule 3(5) of Cenvat Credit Rule 2004
- Consideration of depreciated value of capital goods for reversal of Cenvat Credit
- Limitation period for demand of Cenvat Credit
- Imposition of penalty

Reversal of Cenvat Credit on sale of capital goods:
The case involved the sale of plant and machinery by the appellants to another company, leading to a demand notice for not reversing the Cenvat Credit involved on the capital goods as per Rule 3(5) of Cenvat Credit Rule 2004. The appellants argued that since the capital goods were not physically removed from the premises, the Cenvat Credit availed should not be reversed. They relied on a decision of the Hon'ble Karnataka High Court to support their stance.

Interpretation of Rule 3(5) of Cenvat Credit Rule 2004:
The Revenue contended that the sale of plant and machinery, even without physical removal, necessitated the reversal of Cenvat Credit. They cited precedents from the Hon'ble Karnataka High Court, the Hon'ble Supreme Court, and a Tribunal case to support their argument. The Revenue also proposed considering the depreciated value of the capital goods for the reversal of Cenvat Credit, referring to a Larger Bench decision of the Tribunal and a judgment of the Hon'ble Madras High Court.

Consideration of depreciated value of capital goods for reversal of Cenvat Credit:
The Tribunal examined the arguments presented by both sides and referred to the decision of the Hon'ble Karnataka High Court, which was followed by the Tribunal in a similar case. The Tribunal also referenced the Larger Bench decision regarding the consideration of depreciated value for calculating the amount of credit required to be reversed. The Tribunal set aside the impugned order and remanded the matter to the Adjudicating Authority for re-determination of the Cenvat Credit, considering the depreciation allowed under the relevant rules.

Limitation period for demand of Cenvat Credit:
Regarding the limitation period for the demand of Cenvat Credit, the Tribunal found that the demand issued to the appellant was within the normal period of limitation, as it was made within a reasonable timeframe after the sale of the capital goods. The Tribunal dismissed the argument that the demand was barred by limitation.

Imposition of penalty:
The Tribunal decided that the imposition of penalty should be considered only after the re-quantification of the Cenvat Credit amount by the Adjudicating Authority. The Tribunal emphasized that the penalty aspect should be determined with the understanding that the demand falls within the normal limitation period. The appeal was disposed of accordingly, with the impugned order set aside and the matter remanded for re-determination of the Cenvat Credit amount.