2016 (11) TMI 475 - AT - Central Excise

CENVAT credit - capital goods cleared after use - Held that - the appellant was not required to pay excise duty that is in another words debit of Cenvat credit taken at the time of receipt of said capital goods under Rule 3(5) of Cenvat Credit Rules, 2004 while removing the said capital goods after use. Therefore, I set aside the Order-in-Appeal and allow the appeal. The appellant shall be entitled for consequential relief, in accordance with law.

Summary

Issues:
1. Interpretation of Rule 3(5) of Cenvat Credit Rules, 2004 regarding removal of capital goods.
2. Applicability of case laws in determining whether used capital goods qualify as capital goods removed as such.
3. Assessment of the ruling by the Hon'ble High Court of Delhi in a similar case.

Issue 1: Interpretation of Rule 3(5) of Cenvat Credit Rules, 2004 regarding removal of capital goods:
The appellant, M/s Kirloskar Batteries Private Limited, filed an appeal against the Order-in-Appeal issued by the Commissioner of Central Excise & Customs (Appeals), Noida, seeking recovery of Cenvat credit availed in respect of capital goods cleared after use. The dispute revolved around the application of Rule 3(5) of the Cenvat Credit Rules, 2004, which deals with the removal of capital goods. The appellant argued that the capital goods were not removed as such since they were used over several years before being transferred to another unit. The Original Authority upheld the demand for recovery, but the appellant contended that the Rule did not cover the clearance of capital goods after use.

Issue 2: Applicability of case laws in determining whether used capital goods qualify as capital goods removed as such:
The appellant relied on various case laws, including the case of Cummins India Ltd. versus Commissioner of Central Excise, Pune-III, to support their claim that the clearance of used capital goods should not be treated as removal as such under Rule 3(5) of the Cenvat Credit Rules, 2004. The appellant's argument was based on the premise that capital goods lose their identity only when they become in-serviceable and fit to be scrapped after years of use. The Tribunal referred to the ruling by the Hon'ble High Court of Delhi in a similar case and concluded that the appellant was not liable to pay excise duty or reverse the Cenvat credit taken at the time of receiving the capital goods when removing them after use.

Issue 3: Assessment of the ruling by the Hon'ble High Court of Delhi in a similar case:
The Tribunal analyzed the ruling by the Hon'ble High Court of Delhi, which emphasized that the removal of used capital goods should not be considered as removal as such under Rule 3(5) of the Cenvat Credit Rules, 2004. The High Court's decision highlighted that the objective of Cenvat Credit on capital goods is to prevent the cascading effect of duty, and clearing machines after utilization should not be treated the same as clearing them without use. The Tribunal concurred with the High Court's interpretation and dismissed the Revenue's appeal, allowing relief to the appellant and setting aside the Order-in-Appeal.

In conclusion, the judgment by the Appellate Tribunal CESTAT ALLAHABAD in the case of M/s Kirloskar Batteries Private Limited provides a detailed analysis of the interpretation of Rule 3(5) of the Cenvat Credit Rules, 2004, the application of relevant case laws, and the significance of rulings by higher courts in determining the liability for excise duty on the removal of used capital goods. The Tribunal's decision favored the appellant, emphasizing that the clearance of capital goods after use should not trigger the repayment of Cenvat credit, aligning with the principles established in previous legal precedents.