2009 (7) TMI 1034 - AT - Central Excise

Summary

Issues:
1. Reversal of Cenvat credit on capital goods sold as scrap.
2. Interpretation of Cenvat Credit Rules, 2004 regarding the removal of capital goods.
3. Determination of whether the capital goods sold were unusable scrap or usable as capital goods.

Analysis:
1. The appellant installed an induction furnace and took Cenvat credit amounting to Rs. 4,72,032/- on various components of the furnace. Later, the appellant scrapped the capital goods and sold them as old and unusable goods. The revenue demanded the reversal of the entire Cenvat credit amount, contending that the goods were usable as capital goods. The Asstt. Commissioner confirmed the demand, which was upheld by the Commissioner (Appeals). The issue revolved around whether the goods were indeed unusable scrap or still usable as capital goods.

2. The Cenvat Credit Rules, 2004, specifically Rule 3(5) and Rule 3(5)(A), were crucial in determining the case. Rule 3(5) states that when capital goods are removed from the factory, the manufacturer must pay an amount equal to the credit availed. Rule 3(5)(A) specifies that if capital goods are cleared as waste and scrap, the manufacturer must pay duty on the transaction value. The appellant had paid the amount under Rule 3(5)(A), but the revenue argued that the full Cenvat credit should have been reversed or an amount equal to the credit should have been paid. The key dispute was whether the goods sold were indeed unusable scrap or still usable as capital goods.

3. The Tribunal examined the evidence and reasoning presented by both parties. It was noted that just because the goods were in use until a certain date did not automatically mean they could not be considered scrap. The condition of the capital goods and their economic viability for production should have been assessed. The Tribunal found that there was no evidence to support the revenue's claim that the goods were still usable as capital goods. Therefore, the Tribunal held that the amount paid by the appellant under Rule 3(5)(A) was correct, and the demand for reversal of the entire Cenvat credit was not justified. Consequently, the impugned order was set aside, and the appeal was allowed.