By TIOL News Service

CHENNAI, JULY 06, 2015: THE issue before the High Court was - Whether the inputs and capital goods used in a power plant and on which Cenvat credit of duty had been taken could be deemed as removed as such in terms of the provisions of Rule 3 (5) of the Cenvat Credit Rules, 2004, when the right to use the said power plant along with the land, building, plant and machinery were leased by the assessee for consideration to another company?

The respondent/assessee is engaged in the manufacture of cement, for which they are registered with the department. The assessee availed cenvat credit on capital goods, inputs and input services and utilised the same for payment of duty on the final product, viz., cement. A power plant was set up by the assessee within their factory premises for which they took cenvat credit on the duty paid on inputs and capital goods received in their factory in relation to the setting up of the power plant. The credit availed by the assessee was utilised for payment of duty on cement. The department conducted investigation and on scrutiny of the records, found that the said power plant was leased out by the assessee to M/s.Keshav Power Pvt. Ltd. under a lease deed. It is the case of revenue that the assessee has to reverse the CENVAT Credit availed on Capital goods, inputs and input services in respect of the power plant. The department is in appeal before the High Court against the order of Tribunal allowing the credit.

After hearing both sides, the High Court held:

On facts, the Tribunal went in detail into the lease deed, the terms and conditions of the lease and the various clauses to come to the conclusion that there was no removal of goods as such from the premises of DCL (assessee)  and, therefore, held that the order of the adjudicating Commissioner is bad. The reasoning of the Tribunal, in the considered opinion of this Court, is a well considered reasoning and this Court finds no reason to differ with the view of the Tribunal, as we have considered the contentions and findings in extenso. The decisions relied on by the Tribunal in arriving at the above decision is also well founded and, therefore, this Court does not find any reason to interfere with the same.

In this case, we find there is no removal of goods under cover of invoice as provided under Rule 9 of the Cenvat Credit Rules, 2004 and there is nothing in Rule 3 (5) of the Cenvat Credit Rules, 2004 to invoke the deeming fiction as insisted by the adjudicating authority. The language of Rule 3 (5) is plain and simple. When the inputs or capital goods on which cenvat credit has been taken are removed as such from the factory, then subject to compliance of other requirements, the credit availed in respect of inputs on capital goods shall be paid. This situation has not arisen in the present case, as no invoice has been issued for removal of the goods from the factory premises and, therefore, the said rule is not applicable to the case of the assessee.

(See 2015-TIOL-1539-HC-MAD-CX)