By TIOL News Service

MUMBAI, JULY 21, 2016: THE appellant availed MODVAT credit on certain capital goods in 1996 and after use of 10 years cleared the same in 2006 on payment of duty at transaction value of sale.

Revenue wants that the appellant reverse the entire credit availed.

The matter finally reached the CESTAT.

The appellant relied on the Tribunal decision in Cummins India Ltd. – 2007-TIOL-1620-CESTAT-MUM (as upheld by the Bombay High Court) and wherein it is held that during the period 1.9.2004 to 13.11.2007 there were no provisions for reversal of credit taken on capital goods when they were cleared after use on a later date.

It is further submitted that different High Courts had taken different views on the subject and the Larger Bench of the Tribunal in the case of Navodhaya Plastic Ltd. – 2013-TIOL-1773-CESTAT-MAD-LB concluded that the decision of Madras High Court in the case of Commissioner of Central Excise, Salem Vs. Rogini Mills Ltd. – 2011-TIOL-05-HC-MAD-CX should be followed. Inasmuch in the said case the High Court held that when capital goods are cleared after use, the credit needs to be reversed at the depreciated value as prescribed under CBE&C Circular No. 643/34/2002-CX dated 1.7.2002. The appellant informed that if duty is calculated in the manner as laid down in the cited Circular, then the liability of the appellant would be around Rs.10,000/-, whereas they have already paid Rs.97,000/- at the time of clearance of the used capital goods. In fine, since no demand of duty can be made, therefore, penalty and interest also needs to be set aside.

The AR relied on the LB decision in Modernova Plastyles Pvt. Ltd. - 2008-TIOL-1771-CESTAT-MUM-LB where it is held that clearance of used capital goods should be considered as clearance of goods "as such" and the credit taken is required to be reversed.

The Bench observed -

"4. … I find that the Larger Bench of the Tribunal in the case of Navodhaya Plastic (supra) after examining the case law has observed as follows:-

"10. 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 terms of the decision of Hon'ble High Court of Madras in the case of Rogini Mills Ltd. (supra), the appellants are only required to reverse the credit calculated in terms of CBE&C Circular cited above. If that is a case then the liability of the appellants is limited to around Rs.10,000/- whereas they have already reversed over Rs.97,000/-. In these circumstances, no demand can be sustained against the appellants…"

The appeal was allowed, the penalty and interest were also set aside.

(See 2016-TIOL-1799-CESTAT-MUM)