2015 (1) TMI 1131 - AT - Central Excise

CENVAT Credit - Capital goods - Transfer of unutilized credit - Held that - it is only a case of leasing out of the inputs and capital goods and no removal has taken place and therefore provisions of Rule 3(5) are not applicable. The credit transferred by the appellant is to the balance 50% of the credit pertaining to capital goods procured by the appellant during 2009-10 and the unutilized credit can be transferred subject to utilization in the subsequent year - in the case of leasing out of the factory to another company, no liability arises to reverse CENVAT credit since there was no physical removal of such goods - Following decision of Dalmia Cements Bharat Ltd. v. CCE, Tiruchirapalli 2007 (11) TMI 211 - CESTAT, CHENNAI - Decided in favour of assessee.

Summary

Issues: CENVAT credit reversal on leasing out factory, applicability of Rule 3(5) of CENVAT Credit Rules, 2004, interpretation of physical removal of goods, liability to reverse CENVAT credit on leasing factory, transfer of unutilized credit to lessee, relevance of case law in similar situations.

Analysis:

The case involved the leasing out of a factory by an appellant to another company, leading to a dispute regarding the reversal of CENVAT credit. The appellant had submitted a list of inputs, inputs in transit, and capital goods to the lessee, along with details of unutilized CENVAT credit. The issue arose when proceedings were initiated to reverse the CENVAT credit on the grounds that the appellant had raised invoices and sold the goods. An amount was demanded along with penalties.

The appellant argued that the issuance of tax invoices was solely for VAT payment and did not create a liability to reverse the credit. They contended that Rule 3(5) of the CENVAT Credit Rules, 2004, applies only to physical removal of goods from the factory, which did not occur in this case due to leasing. The appellant cited a precedent where it was held that leasing out a factory does not necessitate the reversal of CENVAT credit as there was no physical removal of goods.

Upon review, the tribunal found the cited precedent applicable to the present case, and no contrary decisions were presented by the respondent. The issue was deemed narrow, and with the agreement of both parties, the appeal was allowed without further consideration of facts or law. Consequently, the impugned order was set aside, and the appeal was allowed, with any consequential relief to the appellant.

In conclusion, the tribunal ruled in favor of the appellant, emphasizing that leasing out the factory did not trigger the reversal of CENVAT credit as there was no physical removal of goods, aligning with the interpretation of Rule 3(5) of the CENVAT Credit Rules, 2004, and supported by relevant case law.