2010 (4) TMI 294 - HC - Central Excise

Cenvat Credit clearance as such - Sale of capital goods reversal of cenvat credit - The Respondent used the said machinery till 2003 and sold the same in May 2003 after payment of duty of Rs. 32, 000/- i.e. 16% on the sale price Rs. 2, 00, 000/-. The Respondent paid duty on the transaction but the Revenue formed an opinion that Respondent should pay duty equal to Cenvat Credit availed at the time of purchase of the machinery. originally credit availed was Rs. 1.30 Lacs Held that - The capital goods loose their identity as capital goods only when after use over a period of time the same has become in-serviceable and fit to be scrapped. The object of Cenvat Credit on capital goods is to avoid the cascading effect of duty. If even after use for a couple of years the Cenvat Credit is required to be reversed then it would certainly defeat the object of the scheme. To avoid misuse of the scheme in the Rules it has been provided that if the machines are cleared as such the Assessee shall be liable to pay duty equal to amount of Cenvat Credit availed. The machines which are cleared after utilization cannot be treated as machines cleared as such. - . The machine cleared after putting into use for nine years cannot be treated as Cleared as such . Insertion of proviso w.e.f. 13.11.2007 makes it clear that there is difference between machines cleared without putting into use and cleared after use decided in favor of assessee

Summary

Issues:
1. Interpretation of the expression 'capital goods cleared as such' under Cenvat Credit Rules, 2002.
2. Consistency in interpretation by different benches of the Tribunal.

Analysis:

Issue 1:
The case involved a dispute where the Revenue challenged the Tribunal's order dismissing the Appeal and confirming that the Respondent had paid the correct amount of duty. The Respondent, engaged in manufacturing Non-Alloy Steel Ingots, purchased an Induction Furnace in 1994 and availed credit equal to the duty paid on the machinery. After using the machinery till 2003, it was sold in May 2003, with duty paid on the sale price. The Revenue contended that the Respondent should pay duty equal to the Cenvat Credit availed at the time of purchase, leading to a demand for a differential amount of credit. The Adjudicating Authority confirmed the demand and imposed additional duty. The Commissioner (Appeals) later allowed the Respondent's appeal, following a Board Circular. The Tribunal, relying on precedent cases, upheld the Respondent's position, emphasizing the distinction between capital goods cleared 'as such' and those cleared after use. The High Court concurred, highlighting the objective of Cenvat Credit on capital goods to prevent duty cascading and the significance of the proviso added to the Rules in 2007 regarding clearance after use.

Issue 2:
The Revenue raised questions of law challenging the Tribunal's interpretation of 'capital goods cleared as such' and the consistency of this interpretation with a previous Larger Bench decision. The Revenue argued that the Tribunal erred in distinguishing the earlier decision, which defined 'as such' as in its original form without alterations. However, the Respondent's Counsel pointed out that the present case pertained to different Rule provisions not covered in the previous decision. The High Court, after considering arguments from both sides, upheld the Tribunal's decision, emphasizing the nature of capital goods being used over time and losing their identity only when no longer serviceable. The Court concluded that the Appeal lacked merit, answering the Revenue's questions in favor of the Assessee and dismissing the Appeal.

In conclusion, the High Court upheld the Tribunal's decision, emphasizing the distinction between capital goods cleared 'as such' and those cleared after use, in line with the Cenvat Credit Rules' objective to prevent duty cascading. The judgment provided clarity on the interpretation of relevant provisions and affirmed the Respondent's position, dismissing the Revenue's Appeal.