2010 (4) TMI 481 - AT - Central Excise

Cenvat- Capital Goods - On verification of their records it was noticed that appellants had wrongly availed Cenvat credit on 4 capital goods which were shifted to M/s. Aditya Engineering without reversing the appropriate Cenvat credit amounting to Rs. 1, 50, 671/-. It was also noticed that appellants had wrongly availed service tax credit of Rs. 5, 294/- on telephone charges and security services used by M/s. Aditya Engineering. Appellants agreed the same and paid vide Cenvat account entry Nos. 871 & 872 dated 21-3-2007. Accordingly a show cause notice dated 21-8-2007 was issued demanding the same along with interest and penalty. Held that - in several cases Tribunal and Punjab Haryana High Court have decided the issue in favour of assessee. Following the ratio of these decision imposed order asking for reversal set aside. Further held - Since the amount of wrongly availed Cenvat credit is not utilized the interest liability fastened is unwarranted and is set aside.

Summary

Issues:
1. Reversal of Cenvat credit on capital goods shifted to job worker.
2. Eligibility of Cenvat credit on service tax paid on telephone charges and security services used by job worker.

Analysis:

Issue 1: Reversal of Cenvat credit on capital goods shifted to job worker
The case involved the appellants, registered manufacturers of Industrial Valves, who availed Cenvat credit on capital goods, inputs, and input services. The department found that the appellants wrongly availed Cenvat credit on capital goods shifted to another entity without reversing the appropriate credit. The appellants contended that the other entity was their sister concern engaged in job work exclusively for them, and hence, the movement of capital goods did not amount to removal. The Adjudicating Authority confirmed the demand, but did not impose a penalty. The Commissioner (Appeals) rejected both the appellant's and Revenue's appeals. The Tribunal considered the provisions of Rule 4(5)(a) of the Cenvat Credit Rules, 2004, which allows Cenvat credit on inputs or capital goods sent to a job worker, subject to certain conditions. The Tribunal found that the capital goods were utilized by the job worker for further manufacturing, supporting revenue neutrality. Citing relevant case laws, the Tribunal set aside the order upholding the reversal of Cenvat credit on the capital goods shifted to the job worker's premises.

Issue 2: Eligibility of Cenvat credit on service tax paid on telephone charges and security services
Regarding the eligibility of Cenvat credit on service tax paid on telephone charges and security services used by the job worker, the Tribunal concluded that such credit was not eligible for the appellant. The Tribunal upheld the denial of service tax credit and set aside the interest liability imposed since the wrongly availed Cenvat credit was not utilized. The Tribunal disposed of the appeal accordingly, pronouncing the operative portion of the order at the conclusion of the hearing.

This judgment clarifies the applicability of Cenvat credit rules in cases involving the movement of capital goods to job workers and emphasizes the conditions for availing such credits. It also highlights the limitations on claiming Cenvat credit on specific services used by job workers, ensuring compliance with relevant regulations and avoiding unwarranted liabilities.