By TIOL News Service

MUMBAI, MAR 15, 2016: THE issue involved is as to whether the capital goods, if removed, without installation and without putting to use, as waste and scrap will attract duty equal to the amount of credit taken or the duty on the transaction value of the machine sold as waste and scrap will suffice.

Having lost their case before the Commissioner (A), the appellant is before the CESTAT.

It is submitted that three types of clearances prescribed under rule 57S(2) of the erstwhile CER, 1944.

"(2) In a case, -

(a) where capital goods are removed without being used from the factory for home consumption, on payment of duty, or for export on payment of duty of excise, such duty of excise shall in no case be less than the amount of credit that has been allowed in respect of such capital goods under rule 57Q;

(b) where capital goods are removed after being used in the factory for home consumption on payment of duty of excise or for export under rebate on payment of duty of excise, such duty of excise shall be calculated by allowing deduction of 2.5 per cent of credit taken for each quarter of a year of use or fraction thereof, from the date of availing credit under rule 57Q; and

(c) where capital goods are sold as waste and scrap, the manufacturer shall pay the duty leviable on such waste and scrap."

Inasmuch as since there is no dispute that the unused capital goods was sold as waste and scrap and there being no condition that the capital goods if sold as waste and scrap should be first installed and used, therefore, even though the capital goods is removed without being used but as waste and scrap, the duty payable should be on the transaction value of the waste and scrap so sold, the appellant added. Reliance is inter alia placed on the decision in Motor Industries Co. Ltd. - 2004-TIOL-122-CESTAT-BANG.

It is further submitted that the case was made under the erstwhile CER, 1944 whereas the adjudication was done after introduction of new CCR, 2002 and although a saving clause is provided u/s 38A of the CEA, 1944, it applies only to the credit taken and not to the penalty imposition.

The AR reiterated the findings of the lower authorities.

The Bench adverted to the provisions of rule 57S(2) of the erstwhile CER, 1944 (supra) and observed -

+ It is clear that there are three stages of removal of capital goods (i) where capital goods are removed without being used, (ii) where capital goods are removed after being used and (iii) where capital goods are sold as waste and scrap.

+ It is to be kept in mind that even after use for some time if the capital goods is sold then also the excise duty is payable in terms of Clause (b) after allowing the deduction of 2.5% of credit taken for each quarter. Therefore when the capital goods is not installed or has not been used its clearance will clearly fall under the clause (a) of Sub-Rule (2) and not under Clause (c).

+ I am, therefore, of the view, that the appellant is required to pay excise duty on the capital goods cleared without being used in terms of clause (a) of Sub-rule (2) of Rule 57S of the Central Excise Rules, 1944. Accordingly, equal amount of Cenvat Credit which has been availed shall be payable by the appellant.

The case laws cited by the appellant were held to involve different facts and hence distinguishable.

On the submission that the saving clause in section 38A of CEA, 1944 does not save penal proceedings initiated under the erstwhile rule 57U of CER, 1944, the Bench, after extracting the referred section observed - it is very clear that any act or omission shall not be punishable if the said act or omission would not have been punishable in the old provision. In the present case, under modvat provisions provided under erstwhile Central Excise Rules 1944, the act of wrong availment of modvat credit was very much punishable and penal provisions was existing. Therefore, the explanation is of no help to the appellant as regard imposition of penalty.

Noting that the Commissioner (A) had correctly interpreted the provisions of law, the order was upheld and the appeal was dismissed.

(See 2016-TIOL-616-CESTAT-MUM)