By TIOL News Service

MUMBAI, JUNE 10, 2017: THE issue is whether the assessee is required to pay duty equal to the total amount of CENVAT Credit availed on capital goods or on transaction value when it is cleared after use.

The appellant submits that the lower authorities placed reliance on the Larger Bench decision in Modernova Plastyles Pvt. Ltd - 2008-TIOL-1771-CESTAT-MUM-LB to conclude against the appellant.

However, even after considering the Larger Bench decision, the High Courts have decided the issue in favour of the appellants in the following cases -

(i) Cummins India Ltd. - 2007-TIOL-1620-CESTAT-MUM affirmed 2008-TIOL-681-HC-MUM-CX

(ii) Solectron Centum Electronics Ltd. - 2014-TIOL-1652-HC-KAR-CX

(iii) Harsh International (Khaini) Pvt. Ltd. - 2012-TIOL-446-HC-DEL-CX

It is further emphasized that as per the Rule 3(5) of the CCR, 2004 prevailing during the relevant period i.e. 2007, the provision only catered to removal of capital goods as such. Nonetheless, in the present case all the capital goods were used for substantial period and thereafter cleared on payment of duty, where it is sold on principal to principal basis, the duty was paid on transaction value and in a case where the capital goods were cleared to their own unit, duty was paid on depreciated value. Inasmuch as since there were no provisions which mandated payment of duty on 'used capital goods', they were not required to pay any duty, but they have, as indicated.

The AR stuck to the stand taken by the department.

The Bench inter alia observed -

+ As per Sub-rule (5) of Rule 3 of Cenvat Credit Rules, 2004 there is no dispute that the duty is required to be paid on the capital goods only when it is removed "as such" from factory premises of the assessee. As per undisputed facts of this case all the capital goods were admittedly cleared after substantial use. + Now, the term 'as such' is used in the Rule obviously indicate the nature of machine. The machine at the time of removal either should be "as such" or should be other than "as such". If it is interpreted that the capital goods after use still remain "as such" though looking to the nature of the capital goods, as regard structure of the machine it never gets changed, therefore under any circumstances the capital goods will remain "as such" only and if it is so then there will be no case where there is a removal of capital goods other than in a condition 'as such'.

+ In my view term 'as such' means the capital goods is cleared from the factory of the assessee without put to use or installed that will fall under term "as such". Other than the condition of "as such", the only situation is that the capital goods being put to use and thereafter it is cleared after substantial use then it does not remain "as such".

+ Therefore, in the present case, when the capital goods were cleared after substantial use, such capital goods do not remain "as such", accordingly Rule 3(5) is not applicable. It can be seen from the reproduced Rule 3(5) and it's second proviso which was inserted on 13.11.2007 which provides the mechanism for payment of duty on the used capital goods. This proviso itself makes it clear that under any circumstances, in case of removal of used capital goods, the duty equal to CENVAT credit availed cannot be leviable.

Noting that the High Courts have consistently held that Rule 3(5) is not applicable in case of removal of capital goods after use, it is held that no duty was admittedly chargeable on the removal of used capital goods.

However, since whatever duty was paid was not being disputed by the appellant, the same was maintained.

The impugned order was set aside and the appeal is allowed.

(See 2017-TIOL-1952-CESTAT-MUM)