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2020 (2) TMI 1254 - AT - Service TaxReversal of CENVAT Credit - capital goods - removal of equipment from the premises of the provider - treatment of waste and scrap on reversal - place of removal - rule 3(5) of CENVAT Credit Rules, 2004 - HELD THAT:- The appellant is a provider of taxable services and the expression ‘removal’, as utilized in Central Excise Act, 1944, is germane only for determination of valuation with intent to subject manufactured goods to assessment which does not logically lend itself for applicability to a provider of output service. Moreover, the said expressions are neither qualified with ‘grammatical variations and cognate expressions’ nor amenable for adoption within CENVAT Credit Rules, 2004. Instead, it would be appropriate for us to lay emphasis on the scheme of CENVAT Credit Rules, 2004 which was reframed to cover input services procured by manufacturers and providers of output services as well as inputs procured by manufacturers and providers of output services. In the present dispute, we are concerned with ‘capital goods’ alone. ‘Capital goods’, by their very nature, are not absorbed into the final product let alone finding inclusion in intangible ‘output service’. It is not contemplated, either in Finance Act, 1994 or in general commercial usage, that capital goods should be in perpetual operation. The absence of such condition in CENVAT Credit Rules, 2004 reflects this common understanding that capital goods are dutiable on procurement and that, unlike the availment of credit of duties suffered on inputs, credit thereof is permitted at certain specified stages and, that too, only twice. Dis-connection of service is preceded by usage, even for a time, of the capital goods which suffice to continue the eligibility owing to existence as such even after service has been rendered. This is clear from the provisions of rule 3(5) of CENVAT Credit Rules, 2004 in accordance with which the manufacturer is required to reverse the credit in full when cleared as such and, under rule 3(5)(a), to reverse in proportion to remenant value after being put to use and at the appropriate rate of duty in the event of transformation as ‘waste and scrap’ - it is only upon the transfer of possession to another manufacturer/provider of output service that credit originally availed can be curtailed and for the facilitation of availment by the successor manufacturer/provider of output services. In the absence of any specific statutory provision requiring such reversal along with absence of further availment of credit by any other assessee, it is held that the impugned order is erroneous in its presumption and in application of law - Appeal allowed - decided in favor of appellant.
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