2016 (11) TMI 429 - AT - Central Excise

Reversal of Cenvat credit - Capital Goods - Rule 3(5) of CCR 2004 - Held that - treating of the cleared/removed JCB machines as waste and scrap on the basis of description in the invoice old and discarded not usable is erroneous in absence of any ground rules for the same - In the facts of the present case, even by the rule of thumb, the price received on sale of the JCB machines (about 40% of purchase value) by the appellant, cannot be said to be scrap value - the appellant is entitled to 100% depreciation under the provisions of Rule 3 (5) as the admittedly user of JCB machines in question is for 40 quarters - Appeal allowed.

Summary

Issues:
Whether capital goods were removed as such, after being used for about four years, the appellant assessee is required to reverse Cenvat credit based on transaction value under Rule 3 (5A) or required to reverse proportionate Cenvat credit under the provisions of Rule 3(5) of CCR 2004.

Analysis:
The appellant, a manufacturer of glazed ceramics tiles and vitrified tiles, acquired two earth mover-JCB machines in 2000 and took Cenvat credit on them. After using the machines for about 10 years, they sold them as old and discarded. A show cause notice was issued proposing to levy excise duty on the transaction value under Rule 3 (5A) of CCR. The appellant contended that they used the machines for 40 quarters and should be entitled to 100% depreciation under Rule 3 (5) instead. The Commissioner (Appeals) upheld the demand, stating that the machines were cleared as waste and scrap. The appellant appealed to the Tribunal, arguing that the machines were not sold as scrap and the provisions of Rule 3 (5A) did not apply. The Tribunal found that the description "not usable" on the invoice did not necessarily mean waste and scrap. The Tribunal also noted that the price received on the sale of the machines (about 40% of purchase value) did not qualify as scrap value. Considering the 40 quarters of use, the Tribunal held that the appellant was entitled to 100% depreciation under Rule 3 (5) and allowed the appeal, setting aside the duty confirmation and penalty.

Overall, the Tribunal found that the machines were not to be treated as waste and scrap solely based on the description in the invoice. The Tribunal also considered the price received on the sale, which did not meet the criteria for scrap value. Given the 40 quarters of use, the appellant was deemed entitled to 100% depreciation under Rule 3 (5), leading to the appeal being allowed with consequential benefits.