2024 (10) TMI 618 - AT - Central Excise

CENVAT Credit - capital goods removed from the factory - Applicability of concept of transaction value to the goods which are not manufactured by the respondent - interpretation of Rule 3 (5A) (ii) of Cenvat Credit Rules, 2004 - HELD THAT - It is evident from the impugned order that the Commissioner (Appeals) completely misread Rule 3 (5A) of CCR under which the demand was confirmed. The Commissioner (Appeals) also committed an error in treating the expression transaction value as assessable value on which duty is paid. Transaction value is the amount paid by one person to another for the goods or services received. Therefore, if the respondent had sold its capital goods to another company, there will be a transaction value i.e., the price for which it had sold the used capital goods. A plain reading Rule 3 (5A) of CCR leaves no manner of doubt that there would be a transaction value when goods are sold, even if such goods are not manufactured by the seller. This is a fit case to be remanded back to the Commissioner (Appeals) to examine Rule 3 (5A) of CCR as applicable during the relevant period and also examine what is value of the capital goods on which the respondent had taken capital goods CENVAT credit. The matter is remanded to the Commissioner (Appeals) to decide the appeal afresh considering the submissions made by the respondent and also the legal provisions as applicable during the relevant period - Appeal allowed by way of remand.

Summary

Issues:
Interpretation of Rule 3 (5A) of Cenvat Credit Rules, 2004 regarding payment on removal of capital goods, Application of transaction value concept to goods not manufactured by the seller, Inclusion of goods not eligible for Cenvat credit in the demand under Rule 3 (5A).

Analysis:
The appeal before the Appellate Tribunal CESTAT NEW DELHI challenged the order-in-appeal dated 06.08.2019 passed by the Commissioner (Appeals), Jodhpur. The case revolved around the respondent's purchase of capital goods from a supplier, which were originally removed from another premises. The Superintendent of Central Excise requested payment under Rule 3 (5A) of Cenvat Credit Rules, 2004, as the goods were removed after being used. The respondent did not respond, leading to a show cause notice and subsequent order-in-original by the Joint Commissioner, which was set aside by the Commissioner (Appeals) in the impugned order.

The department contended that under Rule 3 (5A), if capital goods with Cenvat credit are removed after use, the assessee must pay an amount calculated based on depreciation. The rule specified a straight-line method for calculating depreciation, with a proviso that if the calculated amount is less than the transaction value, the duty payable shall be equal to the transaction value. The department claimed the respondent owed a specific amount based on the sale of the goods, along with interest and penalty, which was confirmed by the Joint Commissioner but set aside by the Commissioner (Appeals).

The Appellate Tribunal found that the Commissioner (Appeals) misinterpreted Rule 3 (5A) by not applying the concept of "transaction value" to goods not manufactured by the respondent. The Tribunal clarified that transaction value is the amount paid for goods received, even if not manufactured by the seller. It was also noted that if the respondent did not avail Cenvat credit on certain goods due to their ineligibility during the relevant period, those goods should not be included in the demand under Rule 3 (5A).

Consequently, the Tribunal allowed the appeal, setting aside the impugned order and remanding the case to the Commissioner (Appeals) for a fresh decision. The Commissioner was instructed to reexamine Rule 3 (5A) of Cenvat Credit Rules as applicable during the relevant period and determine the value of capital goods on which the respondent had taken Cenvat credit. The cross-objection filed by the respondent was also disposed of in the process.