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2016 (6) TMI 829 - AT - Central ExciseTransfer of business - reversal of cenvat credit - demand of duty on finished goods - transfer of entire Chain Division Business out of two divisions in toto, including plant, machinery, raw material work-in-progress and finished goods to a new company - Proceedings were initiated against appellant to recover such Cenvat credit attributable to the above items on the ground that the appellant is liable to reverse the credit on these goods (inputs, intermediate goods, final products and capital goods) as they are no longer in their ownership and control and as such on sale and transfer of Chain Division to a new legal entity, these items are deemed to have been cleared attracting the provisions of Rule 3 (5) of Cenvat Credit Rules, 2004. Held that - the factual position as asserted by the appellant have not been rebutted by the original authority in any finding. Though, excise liability arises immediately on manufacture it is only on removal of goods the duty is to be discharged. We find that the duty on finished excisable goods is liable to be paid upon clearance and in this case, there is no physical clearance of excisable goods by the appellant. On creation of new joint venture company, the duty liability on clearance of these goods has admittedly been discharged by that company. Hence, we find the demand on appellant amounting to ₹ 1,33,25,607/- cannot be sustained. Reversal of cenvat credit - The Hon ble Supreme Court in the case of J.K. Spinning and Weaving Mills Ltd., & Anr. 1987 (10) TMI 51 - SUPREME COURT OF INDIA examined the scope of term removal. It was held that there can be no doubt that the word removal contemplates shifting of a thing from one place to another. In other words, it contemplates physical movement of goods from one place to another. The Tribunal in Dalmia Cements (Bharat) Ltd. Vs Commissioner of Central Excise, Tiruchirapalli reported in 2007 (11) TMI 211 - CESTAT, CHENNAI following the ratio of the Hon ble Supreme Court in the above decision examined the scope of application of Rule 3 (5) of Cenvat Credit Rules, 2004 - when there is no removal of goods under cover of invoice, as provided under rule 9, there is nothing in Rule 3 (5) to invoke the deeming fiction as insisted by the department. Demand is not sustainable - Decided in favor of assessee.
Issues Involved:
1. Liability for payment of Cenvat credit on inputs, work-in-progress, and capital goods upon the sale/transfer of Chain Division. 2. Imposition of penalty under Section 11AC. Issue-wise Detailed Analysis: 1. Liability for Payment of Cenvat Credit on Inputs, Work-in-Progress, and Capital Goods: The appellant was engaged in manufacturing various dutiable items and availing Cenvat credit on capital goods and inputs. They transferred their Chain Division to a new company, M/s. Renold Chain India Pvt. Ltd. (RCIPL), leading to a dispute over the reversal of Cenvat credit on inputs, goods-in-process, finished products, and capital goods. The Commissioner of Central Excise, Trichy, held the appellant liable to pay significant amounts on these items, asserting that the appellant must reverse the credit as they no longer owned or controlled these goods, invoking Rule 3(5) of the Cenvat Credit Rules, 2004. The appellant contended that: - For finished products, RCIPL discharged the excise duty upon clearance, asserting no duty liability on the appellant as there was no physical clearance by them. - Rule 3(5) did not apply as there was no physical removal of inputs or capital goods, emphasizing that credits were legally taken and the transfer did not constitute removal under the rule. - The appellant cited various judicial decisions supporting their stance that physical removal is essential for invoking Rule 3(5). The Tribunal examined these arguments and the factual position, noting that RCIPL discharged the duty on finished goods upon clearance, supported by a Chartered Accountant's certificate. The Tribunal concluded that the demand of ?1,33,25,607/- on finished goods was unsustainable as there was no physical clearance by the appellant. Regarding capital goods and inputs, the Tribunal referred to the Supreme Court's interpretation of "removal" as requiring physical movement. The Tribunal found no physical removal of capital goods or inputs from the appellant's factory, thus ruling that Rule 3(5) was not applicable. Consequently, the demands of ?1,17,33,687/- for capital goods and ?91,76,449/- for inputs were deemed unsustainable. 2. Imposition of Penalty under Section 11AC: The original authority imposed an equal penalty on the appellant, invoking suppression, fraud, etc. The appellant argued that they had duly informed the jurisdictional officer about the transfer and sale, and all procedural changes were approved by the department. The Tribunal found no justification for invoking suppression, noting that the creation of the new joint venture, transfer of the Chain Division, and subsequent demarcation were all done with departmental approval and regular returns were filed. Therefore, the Tribunal ruled that the imposition of the penalty was unsustainable. Conclusion: The Tribunal allowed the appeal, setting aside the impugned order except for the duty demand of ?5,36,685/- towards LPG cleared by the appellant to RCIPL. The Miscellaneous application was also disposed of accordingly.
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