2017 (5) TMI 227 - AT - Central Excise

CENVAT credit - Rule 3(4) of CCR, 2002 - assessee have claimed depreciation from time to time of these capital goods - whether the cenvat credit, which was availed by the appellants predecessor in respect of capital goods, which were cleared by the appellants after procuring from the predecessor, is liable to be reversed by the appellants? - Held that - after procuring these capital goods, the appellants had used these goods for manufacture of their final product. Hence the applicability of Rule 3(4) of CCR, 2002 is in question because the capital goods were not being cleared as such - The question of liability of duty on capital goods after their use was considered by Hon ble Karnataka High Court in the case of CCE vs. Solectron Centum Electronics Ltd. 2014 (10) TMI 596 - KARNATAKA HIGH COURT where Hon ble High Court has analysed the term as such in the context of Rule 3(4) of CCR, 2004 and concluded that The assessee having validly availed cenvat credit, same is required to be reversed only if goods were cleared in the same position without payment of excise duty. The goods were not cleared in the same position but after having been used and in such situation Rule 3(4) of the Rules will not apply - the period in the present case is before 13.11.2007 - there is no liability to pay duty on clearance of impugned capital goods. The premise that transfer of ownership of these goods to M/s Kamko Food Products, fastens the liability of reversal of credit availed by the seller of the goods in the absence of sale of running unit is not legally sustainable. Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Liability of the appellant to reverse cenvat credit availed on capital goods procured from predecessor.
2. Applicability of Cenvat Credit Rules, 2002 on the capital goods cleared by the appellant.
3. Interpretation of Rule 3(4) of CCR, 2002 regarding payment of duty on capital goods after use.
4. Transfer of ownership of capital goods and its impact on the reversal of cenvat credit.
5. Legal sustainability of demanding duty from the appellant based on ownership transfer.

Analysis:

1. The primary issue in this case revolves around the liability of the appellant to reverse the cenvat credit availed on capital goods procured from their predecessor. The appellant cleared capital goods without paying central excise duty or reversing the cenvat credit, leading to a demand from the Revenue. The ownership of these capital goods was transferred to the appellant through a sale agreement, raising questions about the applicability of Cenvat Credit Rules on these goods.

2. The Cenvat Credit of duty paid on the capital goods was initially availed by the predecessor, M/s Unique Alliance Industries, and utilized for payment of duty on their final products. After the ownership transfer to the appellant, these capital goods were used in the manufacturing process. The Revenue contended that Rule 3(4) of CCR, 2002 mandates the appellant to pay duty equal to the credit availed on the capital goods at the time of their removal.

3. The interpretation of Rule 3(4) of CCR, 2002 was crucial in determining the duty liability on capital goods post their use. Citing relevant case laws, including the decision by the Hon'ble Karnataka High Court, it was established that the liability to pay duty arises only when capital goods are removed "as such," implying without being used. The absence of such removal in the present case before a specific legislative amendment indicated no duty liability.

4. The transfer of ownership of the capital goods to the appellant did not automatically impose the responsibility of reversing the cenvat credit availed by the seller. The appellant had purchased the capital goods and had not taken over the liabilities of the previous running unit. The Tribunal's precedent highlighted that in the absence of confirmed excise dues against the seller, the appellant cannot be held liable for the reversal of credit availed by the seller.

5. Considering the above analysis and legal precedents, the Tribunal found that the order of the Commissioner (Appeals) was unsustainable. The appeal filed by the appellants was allowed, emphasizing that there was no duty liability on the clearance of the capital goods before a specific legislative amendment. The judgment was pronounced on 29.03.2017, in favor of the appellants.