2025 (4) TMI 361 - AT - Central Excise

Reversal of CENVAT Credit - capital goods removed as such in terms of Rule 3(5A) of CENVAT Credit Rules 2004 - invocation of extended period of limitation - HELD THAT - On an identical issue decided by the Principal Bench of CESTAT in the case of Bharti Infratel Ltd. 2022 (9) TMI 1339 - CESTAT NEW DELHI and held that the capital goods cleared by the appellant would qualify as scrap and that no amount is required to be paid on the clearance of the same by the appellant under Rule 3(5A) of CENVAT Credit Rules 2004. As the issue stands decided on merits on unequivocable terms in favour of the appellants it is not necessary to examine the contention advanced by learned counsel for the appellant that the extended period of limitation could not have been invoked in the facts and circumstances of the present case. Conclusion - The appellants are not liable for reversing CENVAT credit on the capital goods removed as scrap. The impugned order is not sustainable and is liable to be set aside - Appeal allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment include:

- Whether the appellants were required to reverse CENVAT credit on capital goods removed as scrap under Rule 3(5A) of the CENVAT Credit Rules, 2004.

- Whether the capital goods in question should be classified as "used" or "scrap" for the purposes of CENVAT credit reversal.

- Whether the extended period of limitation could be invoked for the demand of CENVAT credit reversal.

- The applicability of previous judgments and decisions on similar issues to the present case.

2. ISSUE-WISE DETAILED ANALYSIS

Capital Goods Classification: Used vs. Scrap

- Relevant Legal Framework and Precedents: The CENVAT Credit Rules, 2004, particularly Rule 3(5A), governs the reversal of credit on capital goods removed as scrap. The term "scrap" is not explicitly defined within these rules, leading to reliance on judicial interpretations and dictionary definitions.

- Court's Interpretation and Reasoning: The Tribunal referred to the definition and treatment of "scrap" in previous cases, notably Bharti Infratel Ltd., where it was determined that goods declared as scrap and sold to companies specializing in scrap management, with appropriate environmental certifications, qualify as scrap.

- Key Evidence and Findings: The appellants provided evidence of an internal procedure for determining the nature of capital goods, involving OEM and Chartered Engineer certifications. The goods were sold to companies with Hazardous Waste Management certifications.

- Application of Law to Facts: The Tribunal applied the principles from Bharti Infratel Ltd., finding that the appellants' capital goods, declared as scrap and sold accordingly, met the criteria for scrap under the CENVAT Credit Rules.

- Treatment of Competing Arguments: The Department argued the goods were "used" capital goods, requiring credit reversal. However, the Tribunal found the evidence and procedures followed by the appellants sufficient to classify the goods as scrap.

- Conclusions: The Tribunal concluded that the capital goods in question were indeed scrap, and no reversal of CENVAT credit was required under Rule 3(5A).

Extended Period of Limitation

- Relevant Legal Framework and Precedents: The extended period of limitation is typically invoked in cases of suppression, willful misstatement, or fraud. Past decisions have emphasized the necessity of clear evidence for such invocation.

- Court's Interpretation and Reasoning: The Tribunal noted that since the issue was decided on merits in favor of the appellants, it was unnecessary to delve deeply into the limitation aspect. However, it acknowledged the appellants' argument that the extended period was not applicable due to previous finality in similar cases.

- Conclusions: The Tribunal did not find it necessary to examine the limitation issue further, given the decision on merits.

3. SIGNIFICANT HOLDINGS

- Preserve Verbatim Quotes of Crucial Legal Reasoning: "The inevitable conclusion that follows from the above discussion is that the capital goods cleared as 'scrap' by the appellant are scrap and, therefore, the appellant, being an output service provider, was not required to pay any amount in terms of rule 3(5A) of the Credit Rules."

- Core Principles Established: The classification of capital goods as "scrap" under the CENVAT Credit Rules depends on the nature of their disposal and the procedures followed, rather than solely on their physical condition or remaining shelf life.

- Final Determinations on Each Issue: The Tribunal set aside the impugned orders, concluding that the appellants were not liable for reversing CENVAT credit on the capital goods removed as scrap. Both appeals were allowed, and the issue of limitation was deemed unnecessary to address further.