2014 (10) TMI 596 - HC - Central Excise

100% EOU - reversal of Cenvat credit - assessee contended that the clearances were made against CT-3 certificate issued in terms of Notification No.22/2003 dated 31.03.2003 by the customs authorities and that such clearances made to EOUs/EHTPs have the status of deemed exports and therefore, there is no need to reverse the credit involved. - Held that - EOU is entitled to procure goods duty free. Such procurement is permissible only subject to fulfillment of condition of the exemption notification. Further, the decision of Larger Bench of the Tribunal in Lakshmi Automatic Loom Works Ltd., 2008 (10) TMI 57 - CESTAT CHENNAI deals with only reversal of input as such and not removal of used capital goods. In the instant case, the assessee is having Domestic Tariff Area (DTA) Unit in the ground floor. It is having Electronic Hardware Technology Parks (EHTP) Unit in the first floor. The assessee while purchasing the capital goods as well as inputs to its DTA unit has paid duty. Therefore, it has availed Cenvat credit. In so far as the capital goods are concerned, it was used by the assessee in DTA unit. Thereafter, with the permission of the authorities in terms of the Rules 11 and 20 of the Central Excise Rules 2002 and Clause (6) of the Notification No.22/2003, the assessee removed the said goods from DTA unit to EHTP unit. Capital goods purchased for DTA unit was used, it was not removed as such and when it was removed to EHTP unit again, they have no liability to pay the credit. This aspect has been completely missed by the authority. They proceeded on the assumption that user industry thereby mean EHTP unit was not bringing excisable goods directly from the factory of manufacture or warehouse and therefore they are not eligible for exemption. In the light of the aforesaid Notification which granted exemption, it is very clear that EHTP unit is entitled to exemption of payment of duty. Therefore, the assessee rightly availed the Cenvat credit and then reversed it when those goods were moved to EHTP unit and claimed refund. - Decided in favor of assessee. Whether the assessee was not liable to pay any duty when capital goods after it is being used was removed to the EOU unit - Held that - In so far as the inputs are concerned, it is not in dispute that the assessee while purchasing the said goods for its DTA unit has paid duty. It is only when those inputs as such were removed to the EHTP unit, the Cenvat credit availed was reversed. It is because, if the assessee had purchased those inputs for its EHTP unit by virtue of aforesaid Notification, there was no duty payable, as the said inputs were removed with the previous permission of the department as reflected in CT-3. There was no liability to pay the duty and already Cenvat credit had been taken, it was reversed under protest and therefore, they were entitled to the refund of the said amount. - Decided against Revenue.

Summary

Issues Involved:
1. Applicability of Notification No.22/2003 to the case of imported capital goods removed without payment of duty under CT-3.
2. Interpretation of the term "Capital goods as such" in Rule 3(4) of Cenvat Credit Rules 2002.
3. Entitlement of the assessee to the benefit of Cenvat credit availed in respect of inputs.

Issue-Wise Detailed Analysis:

1. Applicability of Notification No.22/2003:
The court examined whether Notification No.22/2003-CE dated 31.03.2003, which deals with exemption to goods brought into EOU/STP/EHTP, was applicable to the present case. The Revenue argued that the assessee did not receive the excisable goods directly from the factory of manufacture or warehouse, thus not fulfilling the condition stipulated in the notification. The assessee contended that the capital goods and inputs were initially purchased for its Domestic Tariff Area (DTA) unit, where duty was paid, and later removed to the EHTP unit with permission from the authorities. The court noted that the larger bench of the CESTAT in Lakshmi Automatic Loom Works Ltd. dealt with the reversal of input as such and not the removal of used capital goods. It was concluded that the EHTP unit is entitled to exemption of payment of duty, and the assessee rightly availed the Cenvat credit. Therefore, the assessee was entitled to the refund claimed.

2. Interpretation of "Capital goods as such":
The court analyzed Rule 3(4) of Cenvat Credit Rules, 2002, which mandates payment of an amount equal to the credit availed when inputs or capital goods are removed as such from the factory. The term "as such" was interpreted by various courts to mean that capital goods are removed without being used. The court referenced judgments from the Punjab and Haryana High Court, Bombay High Court, and Delhi High Court, which held that used capital goods are not considered to be removed "as such." The court concluded that before the amendment on 13.11.2007, there was no duty payable on used capital goods when removed. Thus, the assessee was not liable to pay duty on the removal of used capital goods to the EHTP unit.

3. Entitlement to Cenvat credit on inputs:
The court considered whether the assessee was entitled to the benefit of Cenvat credit availed on inputs. It was noted that the assessee had paid duty while purchasing inputs for its DTA unit. When these inputs were removed to the EHTP unit with the permission of the authorities, the Cenvat credit availed was reversed under protest. The court concluded that since the inputs were initially purchased for the DTA unit and later moved to the EHTP unit with proper authorization, the assessee was entitled to the refund of the reversed Cenvat credit.

Conclusion:
The court dismissed the appeal, holding that:
1. The Notification No.22/2003 was applicable, and the assessee was entitled to the exemption.
2. The term "as such" did not apply to used capital goods, and no duty was payable on their removal before the amendment in 2007.
3. The assessee was entitled to the refund of the Cenvat credit reversed under protest for the inputs removed to the EHTP unit.