2024 (9) TMI 113 - AT - Central Excise

Reversal of CENVAT Credit - capital goods - removal of goods as such - removal of Plant Machinery without reversal of corresponding credit - Rule 3(5) of the CCR, 2004 - HELD THAT - The facts of the present case are squarely covered by the judgement of the Hon ble High Court of Delhi in the case of HARSH INTERNATIONAL (KHAINI) PVT LTD VERSUS COMMISSIONER OF CENTRAL EXCISE 2012 (6) TMI 340 - DELHI HIGH COURT where it was held that ' In the present case the appellant purchased the capital goods in the period between 2003 and 2005 and used them in its factory till they were sold to M/s. Harsh International (Khaini) Pvt. Ltd. in June and July, 2007. Thus the capital goods were used for a period of 2 to 4 years. They cannot therefore be stated to be sold as such capital goods.' - the Hon ble High Court held that the capital goods cannot be stated to be sold as such . They were sold as used capital goods. Further Hon ble Supreme Court in the case of COMMISSIONER OF CUSTOMS VERSUS AUTO IGNITION LTD. 2008 (4) TMI 43 - SUPREME COURT held that the onus to prove that the Assessee had availed the Modvat credit was on the Revenue. During the period in dispute, Rule 3(5) of CCR, 2004 does not provide any mechanism for recovering the Cenvat credit in case the manufacturer has failed to pay an amount equal to the Cenvat credit as required by the Rules. Where the Rules do not provide for recovery mechanism during the impugned period, demand of the same under any other provision is not sustainable and is accordingly set aside. The impugned order is set aside and the appeal filed by the Appellant is allowed.

Issues Involved:
1. Applicability of Rule 3(5) of the Cenvat Credit Rules, 2004.
2. Requirement of reversal of Cenvat credit on removal of used capital goods.
3. Invocation of extended period of limitation.
4. Onus of proof regarding availment of Cenvat credit.

Issue-Wise Detailed Analysis:

1. Applicability of Rule 3(5) of the Cenvat Credit Rules, 2004:
The core issue was whether Rule 3(5) of the Cenvat Credit Rules, 2004 was applicable to the case where the capital goods were removed after being used. The Tribunal examined the rule, which states that when inputs or capital goods, on which CENVAT credit has been taken, are removed as such from the factory, the manufacturer must pay an amount equal to the credit availed.

The Tribunal referenced the judgment of the Hon'ble High Court of Delhi in Harsh International (Khaini) Pvt. Ltd. v. Commissioner of Central Excise, which concluded that used capital goods cannot be considered as removed "as such." The Tribunal agreed with this interpretation, noting that the goods sold by the appellant had been used and thus did not fall under the purview of Rule 3(5).

2. Requirement of Reversal of Cenvat Credit on Removal of Used Capital Goods:
The appellant argued that Rule 3(5) was not applicable because the capital goods were not removed "as such." The Tribunal supported this argument, noting that the goods had been used to their full extent and thus did not retain their original character. The Tribunal cited multiple decisions, including Harsh International and Cummins India Ltd. v. CCE, which upheld that used capital goods do not require reversal of Cenvat credit upon removal.

The Tribunal also referenced the judgment of the Hon'ble Supreme Court in Commissioner of Customs vs. Auto Ignition Ltd., which held that the onus to prove that the assessee had availed the Modvat credit was on the Revenue. The Tribunal concluded that the appellant had not availed any credit on the disputed goods, supported by the Chartered Accountant's certificate, and thus the question of reversal did not arise.

3. Invocation of Extended Period of Limitation:
The appellant contended that the extended period of limitation was wrongly invoked as there was no suppression or misstatement of facts. The Tribunal agreed, noting that the Department had full knowledge of the facts, and the appellant had been filing returns regularly. The Tribunal emphasized that the demand was raised following an audit objection, which does not constitute suppression of facts. Therefore, invoking the extended period was deemed illegal and unsustainable.

4. Onus of Proof Regarding Availment of Cenvat Credit:
The Tribunal reiterated that the burden of proof was on the Department to establish that the appellant had availed the Cenvat credit on the disputed goods. The Tribunal found that the Department failed to provide sufficient evidence to support its claim. The Chartered Accountant's certificates submitted by the appellant clearly showed the bifurcation of assets sold division-wise, indicating that the appellant did not avail any credit on the goods in question.

Conclusion:
The Tribunal concluded that Rule 3(5) of the Cenvat Credit Rules, 2004 was not applicable to the removal of used capital goods. The demand for reversal of Cenvat credit was not sustainable as the goods were not removed "as such." The invocation of the extended period of limitation was also found to be unjustified. Consequently, the impugned order was set aside, and the appeal filed by the appellant was allowed with consequential relief as per law.

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