2017 (6) TMI 897 - AT - Central Excise

Reversal of CENVAT credit - removal of Capital Goods - capital goods Moulds cleared to sister units on returnable basis - Held that - there is no allegation with regard to suppression of facts. It is also clear that the appellants are removing the capital goods only to their sister units and the department is fully aware of such practice adopted by the appellant. On the basis of records as well as facts, the appellants cannot be saddled with suppression of facts with intent to evade payment of duty. Moreover, the capital goods being removed to the sister units, would give rise to a situation of revenue neutrality. Demand set aside - appeal allowed - decided in favor of appellant.

Issues Involved:
Appeal against demand raised for reversal of credit on cleared capital goods; Application of Rule 3(5) of CENVAT Credit Rules, 2001; Allegations of suppression of facts; Method of depreciation for arriving at duty amount; Extended period of limitation for demand; Revenue neutrality in clearing used capital goods to sister units.

Analysis:
1. Demand for Reversal of Credit on Cleared Capital Goods:
The appellants cleared capital goods Moulds to sister units on a returnable basis during the disputed period. The demand was raised for reversing the credit availed/duty paid for the removal of these capital goods. The case involved the interpretation of Rule 3(4) of CCR, 2001, which mandates the reversal of credit when capital goods are removed from the factory.

2. Application of Rule 3(5) of CENVAT Credit Rules, 2001:
The appellants believed that Rule 3(5) did not apply to used capital goods cleared to sister units and that it only applied if capital goods were cleared as such. The original authority confirmed duty based on CBEC circular adopting depreciation in the written down value method. The Commissioner (Appeals) held that the duty demand based on 115% of the cost of production was unsustainable and directed a further show cause notice to determine the method of depreciation. The subsequent show cause notice proposed the written down value method, which was later challenged by the appellants.

3. Allegations of Suppression of Facts:
The appellant argued that there were no allegations of suppression of facts in the show cause notices, and the issue of whether credit had to be reversed for cleared used capital goods was contentious during the relevant period. The appellant relied on legal precedents to support the contention that suppression of facts was necessary for invoking the extended period of limitation.

4. Method of Depreciation for Duty Calculation:
The Commissioner (Appeals) applied the straight-line method for determining depreciation, reducing the duty demand. The appellant contended that the duty should be arrived at using the straight-line method, emphasizing that the situation was revenue-neutral as the capital goods were cleared only to sister units for manufacturing products.

5. Extended Period of Limitation for Demand:
The appellant argued that the extended period should not be invoked as there were no allegations of suppression of facts in the show cause notices. The department had full knowledge of the appellant's practice of clearing capital goods to sister units, which did not indicate any intent to evade payment of duty.

6. Revenue Neutrality in Clearing Used Capital Goods:
The Tribunal held that since the capital goods were being removed to sister units without misuse or diversion, it resulted in a situation of revenue neutrality. Citing the case of Jay Yushin Ltd., the Tribunal concluded that the demand was unsustainable based on the facts and records presented.

In conclusion, the Tribunal found the demands unsustainable, set aside the impugned orders, and allowed the appeals with any consequential relief.

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