2018 (2) TMI 1556 - AT - Central Excise

CENVAT credit - appellant removed various types of scrap generated from the old and used capital goods which were mainly in the nature of damaged parts of the structures of capital goods - Revenue by entertaining a view that as the appellant had availed Cenvat credit on the said capital goods, they were required to pay an amount equal to the duty leviable on the transaction value of such scrap, in terms of the provisions of Rule 3(5A) of the CCR 2004. Held that - the entire Rule 3 of CCR 2004 relates to the availment of Cenvat credit on capital goods and the clearance of capital goods subsequently, either as such or in the shape of waste and scrap. As such sub rule 5A would also take its colour from the preceding rules which are relatable to the clearance of capital goods on which credit has been availed - Independent and solo reading of Rule 5A without appreciating the context in which the same is appearing, as has been done by the authorities below, is not in accordance with the principles of interpretation of law. The said sub rule 5A has to be interpreted by applying the principles of noncitur-a-sociis and cannot be picked up independently. The said sub-rule refers to the clearance of capital goods as waste and scrap and not the parts of the capital goods. In such a scenario, even the strict application of sub rule 5A is not called for. Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Interpretation of Rule 3(5A) of the Cenvat Credit Rules, 2004 regarding payment of duty on scrap generated from capital goods.
2. Whether duty is payable on transaction value of scrap even if Cenvat credit was not availed on the capital goods.

Analysis:
1. The appellant, engaged in manufacturing refrigerant gases and chemicals, faced proceedings for not paying duty on scrap generated from old capital goods. The Revenue contended that as Cenvat credit was availed on the capital goods, duty was payable on the transaction value of the scrap under Rule 3(5A) of the Cenvat Credit Rules, 2004.

2. The appellant argued that since they did not avail Cenvat credit on the capital goods from which the scrap arose, no duty or credit reversal was required. The appellate authority upheld the Revenue's stance, emphasizing that duty is payable on scrap even without availing credit on the capital goods.

3. The Commissioner (Appeals) affirmed the demand under Rule 3(5A), stating that duty is leviable on the transaction value of scrap regardless of credit availed on the capital goods. However, the Commissioner's interpretation was challenged, highlighting that the rule should be read in conjunction with other rules on Cenvat credit and capital goods clearance.

4. The judgment noted that Rule 3(5A) must be interpreted in context with other rules, and the duty is applicable when waste and scrap arise from capital goods on which credit was availed. The strict application of the rule to parts of capital goods was deemed unnecessary.

5. Ultimately, the Tribunal found no merit in the Revenue's position. The appellant's partial payment was acknowledged, and the balance demand confirmation and penalty imposition were set aside, allowing the appeal partially.

This detailed analysis of the judgment addresses the interpretation of Rule 3(5A) and the obligation to pay duty on scrap generated from capital goods, providing a comprehensive understanding of the legal reasoning and decision-making process involved in the case.