2009 (6) TMI 508 - AT - Central Excise

Cenvat- The appellants are engaged in the manufacture of recorded audio cassettes and blank audio cassettes classifiable under sub-heading No. 8524 32 90 and 8523 12 90 of the schedule to the Central Excise Tariff Act, 1985. It appears from the ER-I return for the month of February, 2005 that the appellant removed capital goods to their new unit on reversal of credit on the depreciated value. By a show cause notice dated 9-11-05 the appellant was directed to pay the differential duty basic Excise duty and education cess as they have contravened Rule 3(5) of Cenvat Credit Rules and to impose penalty. Held that- the appellant removed the capital goods to their new unit, where it was used in the manufacture of dutiable final product. Therefore, the appellant is eligible to avail the credit which is demanded in the present case. The entire exercise is revenue neutral and is futile. Therefore, the demand of duty and penalty are not warranted on the ground of revenue neutrality. Thus, the impugned order is set aside. The appeal filed by the appellant is allowed with consequential relief.

Summary

Issues:
1. Contravention of Rule 3(5) of Cenvat Credit Rules
2. Transfer of capital goods inter-unit
3. Revenue neutrality in the case

Analysis:
1. The case involved an appeal regarding the contravention of Rule 3(5) of Cenvat Credit Rules by the appellant, who had removed capital goods to their new unit on reversal of credit on the depreciated value. The appellant was directed to pay the differential duty and penalty for availing credit on the capital goods and clearing them to the new unit on depreciated value. The original authority confirmed the demand, which was upheld by the Commissioner (Appeals), leading to the appellant filing the appeal.

2. The advocate for the appellant argued that the transfer of capital goods to the new unit was revenue neutral as they were used for manufacturing finished goods at the new unit, not sold. Citing precedents and the decision of the Hon'ble Supreme Court, the advocate contended that the transfer was within the scope of revenue neutrality. On the other hand, the revenue representative reiterated the findings of the Commissioner (Appeals) and pointed out the absence of a provision for credit reversal on depreciated value during the relevant period.

3. After considering both arguments and examining the records, it was established that the appellant had availed credit on capital goods before a specific date and used them in manufacturing finished goods. The transfer of these goods to the new unit was deemed a case of inter-unit transfer of capital goods, warranting a decision based on revenue neutrality. Citing relevant case laws and the principle of revenue neutrality, the Tribunal concluded that the demand for duty and penalty was unwarranted as the transfer was revenue neutral, and the appellant was eligible to avail the credit demanded. Consequently, the impugned order was set aside, and the appeal was allowed with consequential relief.