2009 (7) TMI 439 - AT - Central Excise

Quantum of credit reversal - removal of capital goods after use - situation of inter unit transfer within the same company. The manufacturer in respect of both the units is the same legal entity. - The submission of the learned Advocate that even if the entire credit of Rs. 1,74,169/- was reversed, the same amount is available immediately on receipt of the capital goods in other unit merits consideration. The present case is squarely covered by the decision of the Tribunal in the case of Pooja Forge Ltd. v. C.C.E., Faridabad - The decision of the Larger Bench in the case of Modernova Plastyles Pvt. Ltd. v. C.C.E., Raigad 2008 - TMI - 31876 - CESTAT, MUMBAI has held that capital goods removed as such or after use is liable to reverse the credit. There is no dispute that in this case, the credit has been reversed. The issue involved is the quantum of credit. Here, taking note of the fact that it is a case of inter unit transfer adopting the depreciated value (which is normal accounting method whether the goods are removed to another unit or not), I do not find any justification for confirmation of the demand and imposition of penalty.

Issues:
1. Reversal of Cenvat credit on capital goods transferred between units of the same company.
2. Interpretation of the term "removal as such" in the context of Cenvat credit rules.
3. Applicability of the amended Rule 3(5) of the Cenvat Credit Rules regarding the reversal of credit on capital goods removed after use.

Analysis:
1. The appellants had units in Gurgaon and Manesar, where they transferred capital goods from Gurgaon to Manesar for manufacturing identical products. The original authority demanded the reversal of the entire Cenvat credit amount of Rs. 1,74,169/-, but the appellants reversed only Rs. 1,20,107/-. The Commissioner (Appeals) upheld the demand of the differential duty along with interest and penalty.

2. The appellants argued that both factories belonged to the same legal entity, and the capital goods were used for the intended purpose. They relied on a Tribunal decision stating that transferring capital goods between units of the same company for manufacturing the same final products does not require the reversal of credit. The appellants contended that the movement was revenue-neutral, and no demand for differential duty or penalty was justified.

3. The respondent argued that the reversal of credit for removed capital goods is mandatory, whether used or unused, citing a Tribunal decision. They also mentioned that adopting the depreciated value for credit reversal was permissible only after a specific amendment to Rule 3(5) of the Cenvat Credit Rules in 2007.

4. The Tribunal considered both sides' submissions and noted that the 2007 amendment applied to the removal of capital goods after use, even between different companies. In this case, it was an inter-unit transfer within the same company. The Tribunal agreed with the appellants that reversing the entire credit amount was not necessary since the same credit was available immediately at the receiving unit. The Tribunal referenced a previous decision to support this stance and concluded that adopting the depreciated value for inter-unit transfers did not warrant the demand for differential duty or penalty.

5. Consequently, the Tribunal allowed the appeal and provided consequential relief, disposing of the stay petition in favor of the appellants.

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