TMI Blog2009 (8) TMI 440X X X X Extracts X X X X X X X X Extracts X X X X ..... ed as such, in terms of the provisions of Rule 3(5) of Cenvat Credit Rules, 2004 which were in force at that time, the respondent should have reversed the full Cenvat credit originally taken at the time of receipt of the machines and since the credit originally taken was Rs.2,65,048/- and the duty paid at the time of removal of these machines on sale was only Rs.44,000/-, the department demanded the balance amount of Rs.2,21,048/- along with interest and also proposed imposition of penalty. Asstt. Commissioner vide order-in-original confirm the demand with interest. The Commissioner (Appeals) vide order-in-appeal set aside the order-in-original and in arriving at this reason, he relied upon the Tribunal’s judgment in the case of Madura Coats Pvt. Ltd. v. CCE, Tirunelveli, in which it was held that no demand is sustainable in the absence of any provisions to demand duty on removal of used cenvated capital goods under Rule 3(5) of Cenvat Credit Rules, 2004. Held that- since out of 50% of Rs. 2,65,048/- i.e.1,32,524/- which was required to be reversed, only Rs. 44,000/- has been paid by the respondent. Thus the impugned order in appeal is not correct and the same is set aside and orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lied upon the Tribunal's judgment in the case of Madura Coats Pvt. Ltd. v. CCE, Tirunelveli reported in 2005 (190) E.L.T. 450 (Tri.-Bang.) in which it was held that no demand is sustainable in the absence of any provisions to demand duty on removal of used cenvated capital goods under Rule 3(5) of Cenvat Credit Rules, 2004. It is against this order of the Commissioner (Appeals) that the present appeal has been filed by the Revenue. 2. Heard both sides. 2.1 Shri S.N. Srivastava, ld. DR pleaded that the capital goods had been purchased by the respondent in the year 1999-2000 in brand new condition and have been sold after 5 years' use; that the capital goods have been sold as capital goods, not as scrap and thus the capital goods have been cleared as such; that in view of this, as per the provisions of sub-rule (5) of Rule 3 of Cenvat Credit Rules, 2004, the credit originally taken in respect of these capital goods was required to be reversed and since as against credit of Rs.2,65,048/- originally taken, only an amount of Rs.44,000/- has been paid at the time of removal of the capital goods, the balance amount of Rs.2,21,048/- had been correctly demanded; that the term "a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it originally taken should have been reversed. 4. The ld. Commissioner (Appeals) has set aside the Asstt. Commissioner's order relying upon Tribunal's judgment in the case of Madura Coats Pvt. Ltd. (supra) wherein it was held that the removal of cenvated capital goods after some years of use is not the same as removal of capital goods as such and that in case of removal of capital goods which have been used after their installation, the provisions of Rule 3(4) of Cenvat Credit Rules, 2001/2002 [corresponding to Rule 3(5) of the Cenvat Credit Rules, 2004] would not apply. However, this decision has been overruled by the Larger Bench of the Tribunal in the case of Modernova Plastyles Pvt. Ltd. (supra) wherein the Tribunal held that the expression "as such" has to be interpreted as commonly understood, which is in the original form or without any addition, alternation or modification and has nothing to do with the capital goods being new or unused or used. Thus when capital goods in respect of Cenvat credit has been taken, are cleared after some years of use as capital goods, the provisions of Rule 3(5) would be applicable. The question arises as to in such a situation, whether th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 13-11-07, 2nd proviso was added to Rule 3(5) of Cenvat Credit Rules, 2004, which was identical to old Rule 57S(2)(b) of the Central Excise Rules, 1944. The question now arises as whether during the period from 1-3-03 to 12-11-07, when Rule 3(4) of Cenvat Credit Rules, 2002/Rule 3(5) of Cenvat Credit Rules, 2004 provided for payment of an amount equal to the Cenvat credit taken when the inputs or capital goods are cleared as such and there were no specific provisions in respect of clearance of cenvated capital goods after some use, whether the amount equal to the Cenvat credit originally taken would be required to be paid even if the capital goods have been cleared after some use. 6. During the period of dispute, Rule 3(4) of the Cenvat Credit Rules, 2002 was as under: "When inputs or capital goods on which Cenvat credit has been taken, are removed as such, the manufacturer of final products shall pay an amount equal to the credit availed respect of such inputs or capital goods and such removal shall be made under the cover of an invoice referred to in Rule 7". Rule 3(5) of Cenvat Credit Rules, 2004 contained similar provisions. At that time, the 2nd proviso to Rule 3( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y changes and they cease to be the capital goods. Since in respect of removal of unused capital goods as such, full amount of credit taken is required to be reversed and in case of removal of fully scrapped capital goods removed as scrap, as per the provisions of Rule 3(5A), only an amount equal to the duty on the transaction value of the scrap is required to be paid, in the case of removal of capital goods after use, which are still identifiable as capital goods, though used, it would be logical to insist on proportionate credit depending upon the period of use i.e. the quantum of credit to be reversed should be determined by reducing from the credit originally taken at the time of receipt, an amount in proportion to the period of use and in this regard, it would be fair and reasonable to adopt the formula prescribed in old Rule 57S(2)(b) of Central Excise Rules, 1944 and 2nd proviso to the Rule 3(5) of Cenvat Credit Rules, 2004, even though such proviso was not there during the period of dispute. If the Department's view is accepted and literal meaning of Rule 3(4) of Cenvat Credit Rules, 2002/Rule 3(5) of Cenvat Credit Rules, 2004 is adopted, it would lead to absurd results, as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Cenvat Credit Rules, 2004 is adopted, full Cenvat credit originally taken would be required to be reversed, even if the capital goods are cleared after long period of use at a small fraction of their original price, while during the period prior to 1-3-03 and during the period from 13-11-07 either there were separate and specific provisions for Cenvat credit reversal in the case of removal of capital goods after use, providing for reversal of proportionate credit depending upon the period of use, or the provision regarding removal of Cenvat credit were so worded that the same took care of the case when the capital goods are removed after being used, is obviously due to a drafting mistake having crept in, in course of drafting and redrafting of rules relating to Cenvat credit several times - substitution of Rules 57A to 57V of Central Excise Rules,1944 by Rule 57AA to Rule 57AK of Central Excise Rules, 1944 w.e.f. 1-4-2000; thereafter replacement w.e.f. 1-7-01 of Central Excise Rules, 1944 by Central Excise Rules, 2001 and Cenvat Credit Rules, 2001; replacement w.e.f. 1-3-02, of Cenvat Credit Rules, 2001, by Cenvat Credit Rules, 2002 and thereafter replacement w.e.f. 10-9-04, of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch" in Rule 3(4) of Cenvat Credit Rules, 2002/Rule 3(5) of Cenvat Credit Rules, 2004, refer to the identity of the goods as capital goods and it covers unused capital goods as well as used capital goods. (2) During the period from 1-3-03 to 12-11-07 in case of removal of cenvated capital goods after being used, only proportionate Cenvat credit depending upon the period of use, determined as per the formula prescribed in old Rule 57S(2)(c) of Central Excise Rules, 1944/2nd proviso to Rule 3(5) of Cenvat Credit Rules, 2004 (introduced w.e.f. 13-11-07) would be required to be reversed, not the Cenvat credit originally taken. 9. In this case, since the cenvated capital goods have been cleared after about five years of use, it would be fair and reasonable to insist on reversal of 50% of the Cenvat credit originally taken. Tribunal's judgment in case of CCE, Chandigarh v. M/s. Raghav Alloys (P) Ltd. (order No. 393/09-S.M.(B.R.) dated 23-4-09 is not applicable to the facts of this case, as in that case, the cenvated capital goods had been cleared after nine years of use. 9.1 Since out of 50% of Rs.2,65,048/- i.e. Rs.1,32,524/- which was required to be reversed, only an am ..... X X X X Extracts X X X X X X X X Extracts X X X X
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