2016 (11) TMI 913 - AT - Central Excise

CENVAT credit - capital goods which was not installed and used in the factory - Subsequently the capital goods exported under drawback in terms of Section 74 of the Customs Act, 1962 - whether the denial of CENVAT credit on the ground that the capital goods was not put to use in the factory and cleared as such in terms of Rule 3(5) of the Cenvat Credit Rules, 2004, justified? - Held that - the capital goods on which credit was availed, if it is cleared for export there is no need to reverse the Cenvat credit. As regard the drawback claim by the appellant, the appellant is not entitled for the drawback in respect of the Cenvat Credit availed by them. It is observed from the record that the appellant has proposed to reduce the drawback claim to the extent of Cenvat Credit availed by them and the same has been confirmed by the drawback department in their letter. For this reason credit cannot be denied on the ground that the appellant have made a claim of drawback - the appellant is legally entitled for the Cenvat Credit and need not to reverse the Cenvat Credit on the export of capital goods - appeal allowed.

Summary

Issues:
- Availment of Cenvat Credit on capital goods not used in the factory
- Disallowance of Cenvat Credit due to export of capital goods under drawback
- Reversal of Cenvat Credit requirement
- Entitlement of Cenvat Credit on exported capital goods

Issue 1: Availment of Cenvat Credit on capital goods not used in the factory
The appellant availed Cenvat Credit on capital goods that were not installed or used in their factory. The dispute arose when the capital goods were exported under drawback, leading to a show cause notice proposing disallowance of the credit under Rule 3(5) of the Cenvat Credit Rules, 2004. The adjudicating authority confirmed the demand, which was upheld by the Commissioner (Appeals) based on the grounds that clearance of capital goods for export requires reversal of Cenvat Credit, and claiming drawback under Section 74 of the Customs Act, 1962 renders the appellant ineligible for Cenvat Credit.

Issue 2: Disallowance of Cenvat Credit due to export of capital goods under drawback
The appellant argued that since the capital goods on which the credit was taken were exported, no reversal was necessary. They cited relevant judgments to support their claim, emphasizing that the drawback claim was reduced to the extent of Cenvat Credit availed. The Revenue contended that there is no provision in the Cenvat Credit Rules to clear capital goods under bond for export, maintaining that the duty must be paid on removal of capital goods not put to use.

Issue 3: Reversal of Cenvat Credit requirement
The Tribunal analyzed the situation and noted that duty suffered on exported goods cannot be exported, indicating that capital goods exported could be cleared under rebate or drawback under bond. Citing precedents, the Tribunal held that the appellant was not required to reverse the Cenvat Credit on capital goods exported, as established in various judgments, including those of Glass and Ceramic Decorators and Essel Propack Ltd. The Tribunal emphasized that the appellant was legally entitled to the Cenvat Credit and set aside the impugned order, allowing the appeal.

Issue 4: Entitlement of Cenvat Credit on exported capital goods
The Tribunal concluded that the appellant, having exported the capital goods on which the credit was availed, was not obligated to reverse the Cenvat Credit. The judgments cited in similar cases supported this decision, highlighting that the appellant's reduction of the drawback claim to the extent of Cenvat Credit further validated their entitlement to the credit. Consequently, the Tribunal ruled in favor of the appellant, affirming their legal right to the Cenvat Credit and dismissing the need for reversal upon the export of capital goods.