2017 (12) TMI 29 - AT - Service Tax

CENVAT credit - transfer of capital goods to their sister unit - Rule 3(5) of Cenvat Credit Rules, 2004 - whether in terms of Rule 3(5) of Cenvat Credit Rules, 2004 the capital goods are required to be physically removed or mere transfer can be said that goods have been removed? - Held that - appellant is not required to reverse the Cenvat credit as the goods have not been physically removed from their premises to their sister unit - reliance placed in the case of Commissioner Versus Ultra Tech Cement Ltd. 2015 (10) TMI 660 - KARNATAKA HIGH COURT , where it was held that no liability arises to reverse Cenvat credit availed by the CESTAT since there was no physical removal of such goods. As the goods have been transferred to their sister unit, in that circumstance, it is a Revenue neutrality situation. In that circumstance also, the appellant is not required to reverse the Cenvat credit. Extended period of limitation - Held that - As there were divergent views of various High Courts during the relevant period, in that circumstance, the show cause notice cannot be issued by invoking the extended period of limitation. Appeal allowed - decided in favor of appellant.

Summary

Issues:
Appeal against denial of Cenvat credit on transfer of capital goods to sister unit under Rule 3(5) of Cenvat Credit Rules, 2004.

Analysis:
The appellant, a telecommunication service provider, transferred unused optical fibre cables to their sister unit, leading to a dispute over Cenvat credit reversal under Rule 3(5) of Cenvat Credit Rules, 2004. The Revenue contended that transfer necessitated credit reversal, resulting in a show cause notice, adjudication, and imposition of duty, interest, and penalty. The appellant argued that no physical removal occurred, citing judicial precedents like Hero Motors Limited and Ultra Tech Cement Limited to support their stance that credit reversal wasn't mandatory.

The AR opposed, referring to judgments like Associated Cement Co. Limited and J.K. Paper Mills, asserting that credit reversal was required even without physical removal. The appellant highlighted conflicting High Court views to challenge the extended limitation period invoked for the notice. The tribunal analyzed the issue, considering whether physical removal or mere transfer constituted goods removal under Rule 3(5), referencing the Apex Court's stance emphasizing physical movement for removal.

The tribunal cited the Associated Cement Co. Limited case and subsequent decisions, including Ultra Tech Cement Limited, to conclude that no credit reversal was necessary due to the absence of physical removal to the sister unit. It further noted the Revenue neutrality aspect, as seen in the Indeos ABS Limited case, supporting the appellant's position. The tribunal also ruled in favor of the appellant on the limitation issue, citing divergent High Court views during the relevant period, thereby allowing the appeal and confirming the correctness of the Cenvat credit availed.

In conclusion, the tribunal held that the appellant rightfully availed Cenvat credit and wasn't obligated to reverse it under Rule 3(5) of Cenvat Credit Rules, 2004. The appeal was allowed based on the analysis provided, addressing the issues of credit reversal, conflicting judicial precedents, Revenue neutrality, and the limitation period for the show cause notice.