2018 (7) TMI 779 - AT - Central Excise

Transfer of capital goods to sister unit (transfer of business) - whether the transfer would constitute removal of capital goods as such or not? - Rule 3 (5) of the Cenvat Credit Rules 2004 - Held that - True Rule 3 (5) of CCR does require the manufacturer of final products to pay amount equal to credit availed in respect of the inputs or capital goods removed. However the impugned removals are not in the nature of removal of goods for sale or to other buyers or stock transfer etc. On the other hand these capital goods have been removed only on account of closing down of the existing unit at Coimbatore and its shifting to the Hindupur. Rule 10 is a special provision within the same CCR 2004 specifically given for such situations. Hence by the maxim of Generalia Specialibus Non Derogent the provisions of Rule 10 will take precedence and override the general provisions in respect of removal of capital goods found in Rule 3 (5) ibid - the provisions of Rule 10 alone will have direct bearing in respect of these removals. The conditionalities of Rule 10 given in sub-rule (3) have also been complied with. Hence appellants have not fallen foul of Rule 10 of the CCR and are very much eligible to transfer the credit amount along with capital goods so transferred. The Hon ble High Court of Karnataka in the case of CCE Bangalore-II Vs Solectron Centum Electronics Ltd. 2014 (10) TMI 596 - KARNATAKA HIGH COURT has held that prior to 13.11.2007 there was no duty payable in respect of capital goods which was used before it is removed. Appeal allowed - decided in favor of appellant.

Summary

Issues:
- Interpretation of Rule 3(5) of the Cenvat Credit Rules, 2004 regarding the removal of capital goods.
- Applicability of Rule 10 of the Cenvat Credit Rules, 2004 in the case of transfer of capital goods between manufacturing units.
- Compliance with the conditions of Rule 10(3) of the Cenvat Credit Rules, 2004 for transferring Cenvat credit along with capital goods.

Analysis:

1. Interpretation of Rule 3(5) of the Cenvat Credit Rules, 2004:
The case involved the transfer of manufacturing business from one unit to another, leading to the transfer of capital goods. The department contended that Rule 3(5) of the Cenvat Credit Rules, 2004 applied, requiring the appellant to pay back the Cenvat credit availed on the transferred goods. However, the tribunal disagreed, stating that Rule 3(5) pertains to the removal of unused capital goods for sale or other purposes, not applicable in this scenario where the goods were already in use before transfer.

2. Applicability of Rule 10 of the Cenvat Credit Rules, 2004:
The appellant argued that Rule 10 of the Cenvat Credit Rules, 2004 allowed for the transfer of unutilized Cenvat credit in cases of factory relocation. They cited a relevant High Court decision supporting their position. The tribunal agreed, emphasizing that Rule 10 provided specific provisions for such situations, overriding the general provisions of Rule 3(5). Compliance with Rule 10(3) was also noted, further supporting the appellant's eligibility to transfer the credit along with the capital goods.

3. Compliance with Rule 10(3) of the Cenvat Credit Rules, 2004:
The tribunal examined the conditions of Rule 10(3), which required proper accounting of transferred inputs or capital goods to the satisfaction of the Excise authorities. Finding that the appellant had met these conditions, the tribunal ruled in favor of the appellant, setting aside the impugned order and allowing the appeal with consequential benefits as per the law. The decision was supported by references to previous judgments upholding similar interpretations in comparable cases.

In conclusion, the tribunal's detailed analysis focused on the specific provisions of Rule 10 of the Cenvat Credit Rules, 2004, determining its precedence over the general provisions of Rule 3(5) in cases of capital goods transfer due to factory relocation. Compliance with Rule 10(3) was crucial in establishing the appellant's eligibility to transfer the Cenvat credit, ultimately leading to a favorable decision in the appellant's favor.