2012 (11) TMI 203 - AT - Central Excise

Reversal of cenvat credit - clearance of capital goods i.e. old and used forged hammer having capacity of 3 ton without payment of duty - demand, interest thereon and penalty - Held that - Second proviso to sub rule 5 of Rule 3 of the Cenvat Credit Rules, 2004 states that if the capital goods are removed after being used, manufacturer shall pay an amount equivalent to the cenvat credit taken on the capital goods after reducing the same by 2.5% every quarter of a year or part thereof. The said provisions has to be applied on the date of clearance of the capital goods. If the second proviso to sub rule 5 of Rule 3 of the Cenvat Credit Rules is brought in to play by 31.03.04, the entire cenvat credit taken by the appellant would be nil . This would mean that the appellant is not required to reverse any cenvat credit, if the appellant removes the capital goods on which cenvat credit is taken and is in use, after the ten years of its use in his factory premises. Thus finding strong force on the contentions raised by the ld. counsel assessee and also find it from records that when the appellant cleared the said capital goods on 18.03.09, he had specifically mentioned that it is old and used forged hammer, capacity 3 ton . If that be so, the question of reversal of cenvat credit taken on the said capital goods will not arise - in favour of assessee.

Summary

Issues involved:
1. Whether the appellant is required to reverse the cenvat credit availed on the forged hammer of 3-ton capacity upon removal.
2. Interpretation of the provisions of the Cenvat Credit Rules, 2004 regarding the reduction of cenvat credit for capital goods removed after use.

Detailed Analysis:
1. The case involved the appellant, engaged in manufacturing excisable products, who cleared old and used forged hammer without paying duty. The Show-Cause Notice demanded duty, interest, and penalty. The Adjudicating Authority confirmed the charges, leading to an appeal by the appellant. The first appellate authority upheld the decision, stating the appellant must pay/recover the cenvat credit on the capital goods removed as such.

2. The appellant argued that according to Rule 3(5) of the Cenvat Credit Rules, 2004, they were eligible to reduce the cenvat credit by 2.5% for each quarter the capital goods were put to use. The appellant claimed the capital goods were purchased in 1994 and removed in 2009, resulting in 'nil' cenvat credit at the time of removal. The Revenue contended that the appellant failed to provide evidence of the current market value of the goods.

3. The Tribunal analyzed the provisions of Rule 3(5) of the Cenvat Credit Rules, 2004, particularly the second proviso, which mandates reducing cenvat credit by 2.5% for each quarter of use. It determined that by 31.03.04, the entire cenvat credit would be 'nil' if the goods were in use since 1994. The Tribunal agreed with the appellant's argument that since the goods were removed in 2009 after ten years of use, no reversal of cenvat credit was necessary.

4. The Tribunal disagreed with the lower authorities' interpretation that the 2.5% reduction provision applied only from 13.11.07 to 18.03.09, stating it should be applied at the time of capital goods clearance. As the second proviso was in effect at the removal date, the Tribunal held that the appellant was not required to reverse any cenvat credit. Consequently, the impugned order was set aside, and the appeal was allowed.