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TMI Blog2012 (6) TMI 340X X X X Extracts X X X X X X X X Extracts X X X X ..... , Sr. Standing Counsel JUDGEMENT Per : R V Easwar, J : COMMON FACTS The following substantial question of law was framed by us on 20th December, 2011in both the appeals:- Whether the appellant is liable to pay tax, penalty and interest on the cenvat credit which was taken on capital goods which were subsequently sold under Rule 3(5) of the Cenvat Credit Rules, 2004? 2. The brief facts leading up to the filing of the present appeals may be noticed. M/s. Harsh International Pvt. Ltd., one of the appellant, herein, is a company engaged in the manufacture of chewing tobacco. It was registered under the Central Excise Law for the manufacture of chewing tobacco under the brand name of Mehak Chaini Khaini . The company was availing the Cenvat credit on the capital goods under the Cenvat Credit Rules, 2004. On 1st July, 2007, it informed the Central Excise Authorities that pursuant to the withdrawal of the licences issued by the licensor, it has stopped production and clearance of the goods and that the factory would remain closed for an indefinite period and all manufacturing activity would stand suspended from 30th June, 2007. By letter dated 18th July, 2007, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9 the Commissioner (Central Excise) ( CCE ) adjudicated upon the assessee s case. He held that the capital goods were consigned to M/s Harsh International(Khaini) Pvt. Ltd., Kundli (Sonipat) and that they were removed without payment of the appropriate amount and thus there was a violation of the Rules. The goods were accordingly liable to be confiscated under Rule 15. The goods had been seized on 7th April, 2008 and on 26th May, 2008 they were provisionally released on execution of bond equal to the value of the goods and on furnishing bank guarantee of Rs.20 lacs. After noticing these facts, the CCE recorded the following findings, rejecting the contentions of the appellant to the contrary: - 1. The capital goods were cleared neither as waste or scrap but as used capital goods which did not exhaust their useful life at the time of clearance. 2. The departmental understanding of the relevant rule was that even after use, the identity of the capital goods does not change, and, therefore, they remain as such and , therefore, their clearance will be treated as clearance of capital goods and the assessee would be liable to pay an amount equal to the credit availed in respect of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... em the capital goods on payment of redemption fine of ₹ 9,15,500/- under Section 34 of the Central Excise Act. M/s. Harsh International Pvt. Ltd. was given the benefit of paying only 25% of the penalty if they make the payment of duty and the interest within 30 days from the date of communication of the order. It was clarified that the benefit of reduced penalty will be available only if the amount of penalty determined as above is also paid within the period of 30 days. 8. The appellants carried the matter in appeal before the CESTAT. The CESTAT disposed of the appeals by a combined order passed on 16.12.2010. According to the CESTAT, both before and after the amendment, the basic requirement of Rule 3(5) relating to payment and reversal of the credit of excise duty remained constant in the sense that the obligation to pay the duty or to reverse the credit equivalent to what was availed of, related to the capital goods in the months of June and July, 2007. Thus capital goods had been used by Harsh International Pvt. Ltd., after they were purchased during the period 2003-05. In June and July, 2007 the capital goods were sold to Harsh International (Khani) Pvt. Ltd. The Rule ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lity. As in case of claim of exemption from payment of duty, the burden lies upon the assessee to establish that the assessee falls within the four corners of the provision granting the exemption, similarly in a case of non-payment of duty or discharge of any revenue liability, it is for the assessee to establish that he or she was not liable to discharge such revenue liability for valid reasons. Mere contention that on account of frequent changes in the provision of law, which itself is devoid of substance, cannot be a justification to avoid the penal liability resulting from failure to discharge the revenue liability by the assessee. Thus, the appeals were dismissed. 10. It is against the aforesaid common order passed by the CESTAT that both the assesses are in appeal before us. DECISION IN THE CASE OF M/S. HARSH INTERNATIONAL PVT. LTD. 11. In the case of Harsh International Pvt. Ltd., the first question is whether it is liable for the duty of ₹ 58,88,038/- under Section 11A of the Act. According to Rule 3(5), as it stood amended with effect from 6.5.2005, the following was the position:- When inputs or capital goods, on which cenvat credit has been taken, ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pital goods. It has been observed as under: - 8. We have heard arguments of both the Ld. Counsel. The Tribunal has rightly noted that unlike inputs, which get consumed 100% with the same are taken up for use in relation to manufacture of finished goods, capital goods are used over a period of time. The capital goods loose their identity as capital goods only when after use over a period of time, the same has become in-serviceable and fit to be scrapped. The object of Cenvat Credit on capital goods is to avoid the cascading effect of duty. If even after use for a couple of years, the Cenvat Credit is required to be reversed then it would certainly defeat the object of the scheme. To avoid misuse of the scheme in the Rules, it has been provided that if the machines are cleared as such the Assessee shall be liable to pay duty equal to amount of Cenvat Credit availed. The machines which are cleared after utilization cannot be treated as machines cleard as such. With effect from 13.11.2007, a proviso has been added to Rule 3(5) of the Cenvat Credit Rules providing that if the capital goods on which Cenvat credit has been taken are removed after being used, the manufacturer shall pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... them to M/s. Harsh International (Khaini) Pvt. Ltd. 16. As a result, there is no question of paying any penalty under Section 11AC of the Act or any interest on the duty. Thus the appellant is not liable to the payment of duty, interest or penalty. The substantial question of law is answered in the negative, in favour of the appellant and against the Central Excise Department. DECISION IN THE CASE OF M/S. HARSH INTERNATIONAL (KHAINI) PVT. LTD . 17. The substantial question of law to be framed in this appeal would be: - Whether the appellant is liable to pay redemption fine under Section 34 of the Act and interest under Rule 25 of the Central Excise Rule, 2002 in respect of the used capital goods confiscated from it? 18. The above question of law is substituted in the place of substantial question of law already framed which does not seem to bring out the controversy arising in the appellant s case properly. 19. Since we have held that there is no liability to pay excise duty on the used capital goods, as a consequence the goods are not liable to be confiscated. They are, therefore, liable to be released without payment of any redemption fine. Moreover, there is als ..... X X X X Extracts X X X X X X X X Extracts X X X X
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