2023 (12) TMI 1238 - AT - Central Excise

Reversal of cenvat credit - used/rejected capital goods on which Cenvat credit has not been taken are cleared as waste and scrap - transaction value as per Rule 3(5A) of the Cenvat Credit Rules - HELD THAT - On going through the provisions of Rule 3(5) and 3(5A) of the Cenvat Credit Rules. A perusal of these Rules 3(5) and 3(5A) reveal that the expression the capital goods available in Rule 3(5A) refers to the capital goods on which Cenvat credit has been taken - Rule 3(5) provides for a situation where such capital goods are removed as such from the factory or premises of the provider of output service. Rule 3(5A) deals with a situation when such capital goods are cleared as waste and scrap . It is apparent that both the provisions of Rules 3(5) and (5A), are concerned with capital goods on which Cenvat credit has been taken. As the Appellant has not availed any credit on these rejected capital goods cleared as scrap, we hold that the provisions of Rule 3(5) and 3(5A) are not applicable in this case - the demand of duty confirmed in the impugned order is not sustainable. Since, the demand of duty itself is not sustainable, the question of demanding interest or imposing penalty does not arise. The impugned order set aside - appeal allowed.

Summary

Issues involved:
The appeal against the Order-in-Original confirming Central Excise duty demand. Interpretation of Rule 3(5) and Rule 3(5A) of the Cenvat Credit Rules, 2004 regarding payment of duty on cleared scrap goods.

Issue 1: Central Excise duty demand confirmation

The Appellant, a Government of India Undertaking, sold old machineries through auction and was demanded Central Excise duty of Rs. 62,49,180. The Commissioner confirmed the duty demand but dropped other demands proposed in the show cause notice. The Appellant contended that no Cenvat credit was availed on the old machineries, therefore, Rule 3(5A) of the Cenvat Credit Rules, which deals with duty on cleared scrap goods, was not applicable. The Appellant challenged the Commissioner's interpretation of the rules.

Issue 2: Interpretation of Rule 3(5) and Rule 3(5A) of the Cenvat Credit Rules

The Appellant argued that Rule 3(5) and Rule 3(5A) of the Cenvat Credit Rules pertain to capital goods on which Cenvat credit has been taken. They pointed out that Instructions issued by the Board clarified that Rule 3(5A) is applicable only to capital goods on which Cenvat credit has been taken and cleared as waste and scrap. Since no credit was availed on the old machineries cleared as scrap, the Appellant contended that the duty demand based on Rule 3(5A) was incorrect. The Tribunal agreed with the Appellant's interpretation, holding that the duty demand was not sustainable as Rule 3(5) and Rule 3(5A) were not applicable in this case. Consequently, the Tribunal set aside the impugned order and allowed the appeal.

Separate Judgement by Judges:
No separate judgment was delivered by the judges in this case.