2008 (8) TMI 334 - AT - Central Excise

Cenvat Credit goods supplied from 100% EOU to EHTP unit CT 3 procedure under notification no. 22/2003 dated 31-3-2003 Held that - Rule 3(4) is to recover the amount equal to the credit availed by a manufacturer, when he removes the capital goods from his factory. Rule 3(5) also makes it clear that the amount paid under sub-rule (4) of Rule 3, is available as Cenvat credit as if it was a duty paid. Both sub-rules read together make it obvious that if the appellants reversed the credit, the 100% EOU would have been eligible to take a credit in respect of capital goods. However, the cited Notification No. 22/03-C.E. subsequently allows a 100% EOU to procure capital goods without payment of duty against CT-3 Certificate. Since a reading of both the sub-rules together makes it clear that what is sought to be reversed is in the nature of duty and the same duty is exempted under the Notification for specific cases, such as supply to 100% EOU Since the goods had been removed only after considerable use the same can not be held as removal as such demand is not sustainable

Summary

Issues:
1. Interpretation of Notification No. 22/2003 regarding removal of capital goods under CT-3 procedure.
2. Applicability of Rule 3(4) of the Cenvat Credit Rules on removal of capital goods.
3. Justifiability of demanding duty on capital goods removed after considerable use.

Analysis:

1. Interpretation of Notification No. 22/2003:
The case involved the appellant, a 100% EOU under the EHTP scheme, who imported capital goods for their DTA unit and later moved them to the EHTP unit under the CT-3 procedure. The dispute arose when the department demanded duty on these goods despite the appellant availing Cenvat credit initially. The Tribunal, in reference to the Manaksia Ltd. case, emphasized that the purpose of Rule 3(4) is to recover the credit availed when capital goods are removed. However, the Notification No. 22/03-C.E. allows a 100% EOU to procure capital goods without duty payment against a CT-3 Certificate. The Tribunal adopted a liberal interpretation, stating that the duty sought to be reversed is exempted under the notification for specific cases, such as supply to a 100% EOU. Therefore, the removal of goods to an eligible EOU need not be subjected to duty payment.

2. Applicability of Rule 3(4) of the Cenvat Credit Rules:
The Tribunal clarified that the appellants did not remove the capital goods on which Cenvat credit was taken as such. The goods were used for a significant period before being moved to the EHTP unit with departmental permission under the relevant notification. The Tribunal cited the Manaksia Ltd. case to support its finding that the demand for duty on goods where Cenvat credit was initially taken is not justified. The Tribunal highlighted that a liberal approach in interpreting legal provisions is necessary, especially when specific exemptions, like those under Notification No. 22/03-C.E., are available for certain cases.

3. Justifiability of demanding duty on used capital goods:
Even if the capital goods were removed as such, the Tribunal found that Notification No. 22/2003 would still be applicable. However, in this case, the goods were removed only after considerable use. Following the precedent set by the Madura Coats case, the Tribunal concluded that there is no provision to demand duty on such removals when the capital goods have already been used. Therefore, the demand for duty on goods removed after substantial use was deemed unjustified, leading to the setting aside of the impugned order with consequential relief granted to the appellant.