2016 (4) TMI 685 - AT - Central Excise

Demand of duty and imposition of penalty - Whether the transfer of unutilized credit by the appellant who is the lessor, on lease of capital goods and factory building and on sale of inputs is in order - Sale of inputs as such and at the same time the factory and capital goods have been let on lease. Held that - though there is no physical removal of such inputs, the admitted position is that there is a sale which would invite raising an invoice and which would necessitate payment of duty equivalent to the credit taken and the same could have been availed by the lessee to take credit. Therefore, whether there has been physical removal or not, fact remains that proper procedure has not been followed, though credit would have been available to the lessee. Hence, the issue is purely academic which cannot lead to raising of a demand by the Revenue as there is no loss to the revenue. The fact that the appellant lessor is a manufacturer utilizing the inputs and discharging on the final products is not under dispute. Therefore on purchase of the inputs, the lessee is entitled for the credit. Duty demand alongwith penalty under Rule 15 of the CENVAT Credit Rules is set aside. - Decided in favour of appellant

Summary

Issues:
Transfer of unutilized credit on lease of capital goods and factory building and sale of inputs.

Analysis:
1. The case involved M/s Jaishree Packaging, a partnership firm engaged in manufacturing corrugated cartons and boxes, who transferred their factory building and machinery to M/s Jaishree cartons by a leave and license agreement. The appellants transferred raw materials and work-in-progress (WIP) to the lessee without physical removal, surrendering their central excise registration.

2. The internal audit highlighted the failure to reverse the credit on inputs and WIP transferred to the lessee, leading to a show cause notice demanding a sum for wrong Cenvat credit availment. The Deputy Commissioner confirmed the demand and imposed a penalty, which was upheld by the Commissioner (Appeals), prompting the present appeal.

3. The consultant argued that Rule 10 of the CENVAT Credit Rules, allowing transfer of inputs without credit reversal, applied even in lease situations, emphasizing no physical transfer occurred, and the inputs were accounted for in the books and utilized for manufacturing. The consultant cited relevant judgments supporting their stance.

4. The Departmental Representative supported the lower authorities' findings and cited case laws to justify the demand for credit reversal. The issue centered on whether the transfer of credit on sold inputs was valid.

5. The tribunal deliberated on the applicability of Rule 10 of the CENVAT Credit Rules, concluding that since only the factory and capital goods were leased, not the inputs, the rule didn't apply. Despite no physical removal, the sale of inputs required duty payment equivalent to the credit taken, benefiting the lessee. The tribunal found no revenue loss, setting aside the duty demand and penalty due to lack of malafide intent.

6. The tribunal noted the appellant's role as a manufacturer utilizing inputs and discharging duty on final products, affirming the lessee's entitlement to credit on input purchases. The reliance on case laws emphasizing physical removal was deemed irrelevant due to the absence of revenue loss, leading to the order setting aside the duty demand and penalty.