CX - CENVAT Credit - Capital Goods cleared as such - assessee would be entitled to reverse whatever Cenvat credit availed on value to be assessed on date of such subsequent sale as capital goods: CESTAT LB
By TIOL News Service
CHENNAI, NOV 28, 2013: THE assessee are manufacturers of PVC pipes falling under Chapter 39 of the Schedule of the Central Excise Tariff Act, 1985. They had taken cenvat credit on certain capital goods during 2004 and 2005 and they had removed such capital goods vide invoice dt. 26.6.2006 by paying duty on transaction value. Revenue was of the view that as per Rule 3 (5) of Cenvat Credit Rules 2004 when capital goods on which Cenvat credit had been taken were removed from the factory, the manufacturer of the final product shall pay an amount equal to the credit availed in respect of such capital goods.
A show cause notice was issued in this regard demanding difference between credit taken and duty paid on transaction value at the time of clearance. The adjudicating authority dropped the demand. This order has been affirmed by Commissioner (Appeals) also. Against the order of the Commissioner (Appeals) Revenue filed appeal before the Tribunal.
While hearing the appeal, the Single Member of the Tribunal noticed that there were two decisions of the Tribunal on the issue one of the Larger Bench of the Tribunal in Modernova Plastyles Pvt. Ltd. and another in the case of CCE Vs. Geeta Industries Pvt. Ltd . of a Division Bench of the Tribunal. Apparently the decision of the Larger Bench had not decided some aspect of the dispute in question and therefore the Member has referred the following issues to be decided by this Larger Bench:
(i) Whether the decision of Larger Bench in the case of Modernova Plastyles Pvt. Ltd. is silent on the depreciation aspect to be granted on the capital goods removed after use and proportionate reversal of credit and whether the same needs to be addressed to by a further Larger Bench.
(ii) Whether the decision of the Division Bench in the case of Geeta Industries Pvt. Ltd. has correctly granted the benefit of depreciation and subsequent proportionate reversal of credit, in the absence of specific provisions.
After the Single Member Bench made this reference vide Misc. Order No.260/10 dt. 30-04-2010, the issue has been considered by different High Courts in the following cases:-
1. Commissioner v. Cummins India Ltd. - 2009 (234) E.L.T. A120 (Bom.)]
2. CCE Chandigarh Vs Raghav Alloys Ltd. 2010-TIOL-881-HC-P&H-CX;
3. CCE Salem Vs Rogini Mills Ltd 2011-TIOL-05-HC-MAD-CX and
4. Harsh International (Khaini) Pvt. Ltd. Vs CCE 2012-TIOL-446-HC-DEL-CX .
In all the above decisions, the view taken is that when capital goods are removed after use, it cannot be considered as a case of removal of goods “as such” for the purpose of reversing the entire credit taken at the time of receiving the capital goods as prescribed in Rule 3 (5) of CCR 2004.
However, on the question whether there is any need for reversal of any part of the credit that is taken has been answered differently in the above decisions. In the case of Cummins India credit reversed based on transaction value was approved by the Bombay High Court. This was a case where the capital goods were cleared as scrap. In the case of Raghav Alloys , the Punjab and Haryana High Court ordered reversal of credit after allowing deduction at the rate of 2.5% of the credit for each quarter of use of the machine as prescribed under C.B.E. & C. Circular No. 643/34/2002-CX., dated 1-7-2002. In the case of Rogini Mills Ltd , the Madras High Court also upheld a decision of the Tribunal ordering reversal of Cenvat credit of 2.5% for each quarter of a year from the date of taking of Cenvat credit. However, the Delhi High Court in the case of Harsh International (Khaini) Pvt. Ltd. held that there was no provision in the Cenvat Credit Rules during the relevant period for reversal of any amount when used capital goods were removed and therefore no demand was sustainable. Thus, though there is agreement on the issue that the full credit taken at the time of receipt of the goods need not be reversed, the views of different High Courts has differed in the matter of quantum of credit to be reversed.
After examining the legal provisions and the decisions, the Larger Bench observed,
The use of capital goods is to spread over many years. A decision to the effect that assessees can bring in capital goods, use it for a few days and then remove it without reversal of any Cenvat credit taken is not consistent with the overall scheme of Cenvat credit and can lead to abuse of the scheme. Considering this aspect and the legislative history and the circular of CBEC, we are of the view that we should respectfully follow the decision of the Hon'ble Madras High Court in the case of Commissioner of Central Excise, Salem Vs Rogini Mills Ltd. (supra) and the reference made to this Larger Bench is answered accordingly.
In Rogini Mills , the High Court held as,
On a conjoint reading of Rule 3(4) with the provision added to Rule 3(5) with effect from 13.11.2007, the Board's Circular dated 01.07.2002 along with Board's letter dated 26.05.1993, it is quite clear that the inputs or capital goods when disposed of after putting it into some use over a period of time, then the assessee would be entitled to reverse whatever Cenvat credit availed on the value to be assessed on the date of such subsequent sale as capital goods. Such a conclusion by relying upon the above referred to Board's Circular and the letter as well as the addition of proviso to Rule 3(5) with effect from 13.11.2007, is the manner in which the expression 'as such' used in Rule 3(4) can be interpreted .
(See 2013-TIOL-1773-CESTAT-MAD-LB)
