2019 (1) TMI 1380 - AT - Central Excise

CENVAT Credit - capital goods - moulds and dyes - credit on depreciated value of goods - Rule 3(5)(a) of the Cenvat Credit Rules 2004 - Held that - CENVAT credit in respect of capital goods can be taken up to 50% in the same financial year and the balance of cenvat credit in the subsequent year except component spares, accessory refractories and refractory material, moulds and dies and goods falling under heading 6805, 6804 of the First Schedule of the Central Excise Tariff Act. Likewise under subrule 5A such cenvat credit is allowed even if capital goods is sent to job worker provided the same is received back in the factory within 180 days of their being sent to job worker. Sub-rule 5(b) which is applicable to the instant case does not prescribe such 180 days stipulation in availing such credit. Therefore, even if the moulds and dies are kept with job worker for production of goods on behalf of manufacturer, such credit can be availed for an indefinite period. Consequent upon such removal to another factory though available in the same premises, would have the effect of reversal of entire cenvat credit availed had the appellant not shown him as job worker, but while the mould and dies were with the job worker, appellant sold it to M/s. General Motors with adequate payment of VAT. Going by the definition of sale as found in the Central Excise Act under section 2(h), sale means any transfer of the possession of goods by one person to another in the ordinary course of trade or business for cash or deferred payment or other valuable consideration. Such a transfer with physical delivery of possession was not made but appellant had earned profit on sale of such mould and dyes in the guise of recovering the cost from General Motors. Considering the fact that such an exercise was carried out by the appellant is in exercise of erroneous legal interpretation of the provisions of the Cenvat Credit Rules 2004 and credit was availed by reflecting the same in the cenvat credit accounts, no mala fide can be attributed to the appellant so as to call for imposition of any penalty. Accordingly while upholding the demand along with interest, the penalty is set aside - appellant is liable to pay balance duty amount of ₹ 6,04,090/-/- along with applicable interest with effect from 19.12.2011 - Penalty under section 11AC(c) is hereby set aside - appeal allowed in part.

Summary

Issues Involved:
1. Interest on differential duty amount.
2. Penalty on non-reversal of CENVAT credit.
3. Ownership and possession of capital goods.
4. Applicability of Rule 4(5)(b) of the CENVAT Credit Rules 2004.
5. Determination of the date of removal for CENVAT credit reversal.
6. Justification of extended period for duty liability.

Issue-wise Detailed Analysis:

1. Interest on Differential Duty Amount:
The appellant was directed to pay interest on a differential duty amount of ?6,40,094/- under Section 11AA of the Central Excise Act. The Commissioner (Appeals) confirmed the interest from 26.02.2015, the date of actual removal, rather than from 19.12.2011, the deemed date of removal.

2. Penalty on Non-Reversal of CENVAT Credit:
A penalty of ?4,60,271/- (50% of the differential amount) was imposed for non-reversal of CENVAT credit availed on capital goods upon their removal. The Commissioner (Appeals) reduced the penalty, acknowledging the appellant's partial compliance and erroneous calculation.

3. Ownership and Possession of Capital Goods:
The appellant transferred ownership of moulds and dies to General Motors while retaining possession with M/s. Sanjay. The audit report indicated that the appellant availed CENVAT credit on these goods and sold them, necessitating the reversal of the credit.

4. Applicability of Rule 4(5)(b) of the CENVAT Credit Rules 2004:
The appellant argued that Rule 4(5)(b) allows for indefinite retention of moulds and dies with a job worker without reversing the credit. The Tribunal noted that this rule does not prescribe a 180-day return period for moulds and dies, unlike other capital goods.

5. Determination of the Date of Removal for CENVAT Credit Reversal:
The appellant contended that the actual removal date was 26.02.2015, not 19.12.2011. The Tribunal determined that the sale on 19.12.2011, despite no physical delivery, constituted a deemed removal, requiring credit reversal from that date.

6. Justification of Extended Period for Duty Liability:
The department justified the extended period for duty liability based on the audit's findings. The Tribunal agreed, noting the appellant's erroneous legal interpretation and lack of mala fide intent, which warranted setting aside the penalty but upholding the interest and duty demand.

Conclusion:
The Tribunal modified the order, upholding the demand for the balance duty amount of ?6,04,090/- along with applicable interest from 19.12.2011. The penalty under Section 11AC(c) was set aside, acknowledging the appellant's erroneous legal interpretation and lack of mala fide intent. The appeal was allowed in part with the specified modifications.