2007 (6) TMI 47 - AT - Central Excise

Cenvat/Modvat - Department contended that appellant liable to pay an amount equivalent to the capital goods credit on the ground that they removed the capital goods from their factory during alienation of property - Held that department contention is not valid and set aside

Issues Involved:
1. Applicability of Rule 3(4) of the Cenvat Credit Rules, 2002
2. Interpretation of "removal as such" of capital goods
3. Transfer of ownership and its impact on Cenvat credit
4. Provisions for transfer of unutilized Cenvat credit

Issue-wise Detailed Analysis:

1. Applicability of Rule 3(4) of the Cenvat Credit Rules, 2002:
The primary issue in this appeal is the applicability of sub-rule (4) of Rule 3 of the Cenvat Credit Rules, 2002 (CCR). The department contended that the transfer of the factory, including capital goods, to M/s. ITC Ltd. constituted a "removal" of capital goods, necessitating the payment of an amount equivalent to the capital goods credit availed. The appellants argued that the transfer of the factory did not equate to the removal of capital goods from the factory, as the goods remained installed within the factory premises.

2. Interpretation of "removal as such" of capital goods:
The appellants contended that "removal as such" meant the removal of unused capital goods, whereas the department argued that it included both used and unused goods. The Tribunal noted that the expression "as such" was not used in the erstwhile Rule 57-S, which dealt with the utilization of capital goods and the credit of duty paid thereon. The Tribunal concluded that the expression "as such" in Rule 3(4) should be understood to mean the removal of capital goods, whether used or unused, from the factory.

3. Transfer of ownership and its impact on Cenvat credit:
The Tribunal emphasized that for Rule 3(4) to apply, there must be a physical removal of capital goods from the factory under an invoice as per Rule 7 of the CCR, 2002, read with Rule 11 of the Central Excise Rules, 2002 (CER). In this case, the factory, along with the capital goods, was transferred to M/s. ITC Ltd. without any physical removal of the goods from the factory. Therefore, the provisions of Rule 3(4) were deemed inapplicable.

4. Provisions for transfer of unutilized Cenvat credit:
The Tribunal also considered Rule 8 of the CCR, 2002, which allows for the transfer of unutilized Cenvat credit in the event of a change in ownership, provided the stock of inputs and capital goods is also transferred along with the factory. The Tribunal noted that the legislative intent was not to recover utilized Cenvat credit in such cases, as no specific provision was made for such recovery.

Conclusion:
The Tribunal set aside the impugned order and allowed the appeal, concluding that the demand for duty on the appellants in respect of the capital goods was unwarranted under the Cenvat credit scheme. The Tribunal held that the transfer of the factory did not constitute a removal of capital goods as envisaged under Rule 3(4) of the CCR, 2002, and there was no provision for recovering utilized Cenvat credit in the event of a change in ownership of the factory.

Operative Portion:
The operative portion of the order was pronounced in open Court on 19-6-2007.

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