2017 (1) TMI 293 - AT - Central Excise

Cenvat Credit - Restructuring of business - transfer of ownership of their captive power plant, installed within the factory to M/s Bhilai Electric Supply Company Ltd. (BESCL) - transfer deemed as removal by Department - whether the amount is required to be paid under Rule 3(4) of the Cenvat Credit Rules is to be paid by taking such capital goods as removed from the factory? - Held that - the Hon ble Supreme Court in the case of J.K. Cotton Spinning and Weaving Mills Ltd. 1987 (10) TMI 51 - SUPREME COURT OF INDIA , has clearly held that removal contemplates physical removal of goods from one place to another. Such a view has also been taken by the majority of the High Court as well as in several Tribunal decisions including in respect of another unit of respondent. Under the circumstances, we find no infirmity in the order passed by the ld. Commissioner who has held that no amount is required to be paid under Rule (4) on capital goods as there has been no removal and dropped the demand of central excise duty - appeal dismissed - decided against Revenue.

Summary

Issues:
1. Whether the transfer of ownership of a captive power plant constitutes removal of capital goods for the purpose of excise duty liability.
2. Whether Rule 3(4) of the Cenvat Credit Rules, 2002 applies when there is no physical removal of capital goods.

Analysis:

Issue 1:
The case involved an appeal by the Revenue against an order dropping the demand of central excise duty amounting to approximately ?1.7 crores. The respondent had transferred ownership of their captive power plant to another entity under a business restructuring plan. The Revenue argued that since the respondent and the new entity were separate legal entities, the transfer constituted removal of capital goods, triggering excise duty liability. The Revenue relied on the registration of the new entity as a separate factory and alleged suppression by the respondent for not informing the sale. However, the Commissioner held that mere change in ownership without physical shifting did not amount to removal of goods, as the goods remained within the approved factory premises of the respondent. The Commissioner did not address the issue of limitation due to deciding in favor of the respondent on merits.

Issue 2:
The key contention revolved around the interpretation of Rule 3(4) of the Cenvat Credit Rules, 2002. The Revenue argued that the payment equivalent to the credit availed on capital goods was required even without physical removal, citing a High Court decision. On the other hand, the respondent contended that since there was no physical removal of capital goods, the rule did not apply. The respondent presented case laws supporting their stance, emphasizing the need for physical movement for removal. The Tribunal considered various precedents and ultimately upheld the Commissioner's decision, stating that removal entails physical relocation of goods. The Tribunal found no justification to demand payment under Rule 3(4) in the absence of physical removal, dismissing the Revenue's appeal.

In conclusion, the Tribunal upheld the order dropping the excise duty demand, emphasizing the requirement of physical removal for excise duty liability on transferred capital goods. The decision was based on the interpretation of Rule 3(4) and established legal principles regarding removal of goods.