By TIOL News Service

NEW DELHI, OCT 31 2016: DURING the period in dispute, the appellants imported certain capital goods and availed credit of the CVD paid on such imported capital goods. A part of this capital goods was found defective and were re-exported by the appellant under bond, without payment of duty. Revenue took the view that at the time of removal of the capital goods from the factory an amount equal to the Cenvat credit taken on such goods will have to be reversed. The appellants got a favourable order from the Commissioner (Appeals) and the revenue is in appeal against the same.

After hearing both sides, the Tribunal held:

+ The respondent has imported capital goods for use within their factory. Upon receipt of the capital goods in the factory they have availed Cenvat credit of the CVD paid at the time of import. The Revenue's contention is that the credit on capital goods is admissible only when these are used in the factory for manufacture of excisable goods. The definition of capital goods as given in Rule 2 (a) of the Cenvat Credit Rules lists out various goods which are 'used' in the factory of the manufacturer of the final products. This definition of the term "use" has been interpreted by the Tribunal in the case of Ispat Metallics Ltd., to include capital goods which are intended to be used in the factory by the manufacturer.

+ It is not in dispute that the appellants have re-exported the defective capital goods without putting them to use. They have cleared these goods "as such" under bond and export the goods without payment of duty. Para 3.4 of Chapter 5 of CBEC Central Excise Manual reads - "3.4 There is no bar for a manufacturer to remove the inputs or capital goods "as such" for export under bond". Therefore, the respondent cannot be faulted for removing the goods without payment of duty for export.

+ The CBEC has also clarified in Circular dated 29/8/2000 that there is no bar for manufacturer to export inputs and capital goods under bond. In any case if the capital goods would have been cleared for export on payment of duty the same would have been allowed as rebate to the respondent as per the provisions of Rule 19 of the Central Excise Rules, 2002. There is no justification for demand of reversal of the Cenvat credit. Accordingly, the Department's appeal is dismissed.

(See 2016-TIOL-2821-CESTAT-DEL)