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M/s. L.G. BALAKRISHNAN AND BROS LTD. Versus COMMISSIONER OF CENTRAL EXCISE, TRICHY

2016 (6) TMI 829 - CESTAT CHENNAI

Transfer of business - reversal of cenvat credit - demand of duty on finished goods - transfer of entire Chain Division Business out of two divisions in toto, including plant, machinery, raw material work-in-progress and finished goods to a new company - Proceedings were initiated against appellant to recover such Cenvat credit attributable to the above items on the ground that the appellant is liable to reverse the credit on these goods (inputs, intermediate goods, final products and capital go .....

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e find that the duty on finished excisable goods is liable to be paid upon clearance and in this case, there is no physical clearance of excisable goods by the appellant. On creation of new joint venture company, the duty liability on clearance of these goods has admittedly been discharged by that company. Hence, we find the demand on appellant amounting to ₹ 1,33,25,607/- cannot be sustained. - Reversal of cenvat credit - The Hon’ble Supreme Court in the case of J.K. Spinning and Weav .....

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rt in the above decision examined the scope of application of Rule 3 (5) of Cenvat Credit Rules, 2004 - when there is no removal of goods under cover of invoice, as provided under rule 9, there is nothing in Rule 3 (5) to invoke the deeming fiction as insisted by the department. - Demand is not sustainable - Decided in favor of assessee. - E/MISC/00696/2011 and E/00687/2010 - FINAL ORDER NO. 40954 / 2016 - Dated:- 15-6-2016 - SHRI D.N. PANDA, JUDICIAL MEMBER AND SHRI B. RAVICHANDRAN, TECHNIC .....

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nts factory at Gudalur had two divisions, namely, Chain Division and Rolling Steel Division. In Sept.08, through a business transfer agreement, they have transferred Chain Division business, in toto, including plant, machinery, raw material work-in-progress and finished goods to a new company M/s. Renold Chain India Pvt. Ltd., (RCIPL). Consequent upon such a sale and transfer of Chain Division, a dispute arose regarding payment of Cenvat credit availed on inputs available, goods-in-process, fi .....

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the provisions of Rule 3 (5) of Cenvat Credit Rules, 2004. 2. The proceedings concluded vide the impugned order, wherein, learned Commissioner held that the appellant is liable to pay ₹ 1,33,25,607/- on finished excisable goods; ₹ 91,76,449/- towards credit on inputs removed as such; ₹ 31,17,33,687/- towards Cenvat credit on capital goods cleared to the new legal entity; and ₹ 5,36,685/- on LPG transferred, to M/s. RCIPL. The original authority also imposed penalty equiv .....

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sale to M/s. RCIPL, who later discharged duty liability as and when these goods were cleared out of the factory. Since there is no physical clearance of manufactured items by the appellant, there can be no duty liability fastened on them. (b) Regarding Cenvat credit availed on input, goods-in-process and capital goods, he submitted that the provisions of Rule 3 (5) of Cenvat Credit Rules, 2004 has no application as there is no physical clearance of any of these items. At the time of availing cre .....

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Ltd. Vs Commissioner of Central Excise, Ghaziabad reported in 2014 (310) E.L.T.729 (All.) and Honble High Court of Madras decision in the case of Commissioner of Central Excise, Tiruchirapalli Vs Cestat, Chennai reported in 2015 (323) E.L.T. 290 (Mad.), to reiterate his submissions that when there is no physical removal of items, the provisions of Cenvat Credit Rules, 2004 will not be attracted to recover and demand any credit availed on such inputs on capital goods. (c) He further submitted th .....

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counsel submitted that there is no case for imposing any penalty, least of all, equal penalty in facts and circumstances of the case. If at all, it could be a question of interpretation, even if they have to reverse the credit, the new entity will be readily entitled for all these credits. There has been no removal or diversion of any of these products and there is no allegation to that effect also. The learned counsel relies on Supreme Court decision in the case of International Auto Ltd. Vs Co .....

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the Chain Division and hence they cannot claim any benefit of credit on those items which are effectively transferred to new entity as per the sale agreement. He further submitted that in the facts of the case, physical removal should be presumed as Chain Division is effectively handed over to another company and there is no requirement for physically removing the items. It is his submission that Rule 3 (5) has been correctly implemented by the original authority. Regarding penal provisions, th .....

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on inputs, work-in-progress and capital goods consequent on sale/transfer of Chain Division, available at the time of transfer of the said division to M/s. RCIPL. The appellants liability for penalty under section 11AC is also a matter to be resolved. 7. The admitted facts of the case are that the appellant had two divisions in which the excisable goods are manufactured. The Chain Division has been transferred to a new joint venture company, which is created by the appellant with M/s. Renold In .....

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nsferred to a new legal entity. The dispute t is on the Cenvat credit reversal of inputs/capital goods as well as excise duty payment on the finished product. 8. The excise duty liable to the appellant on the finished goods and work-in-progress is considered first. It is the case of the appellant that there is no physical removal of these goods. On transfer of Chain Division, M/s. RCIPL, came in custody and ownership of these goods and have duly discharged appropriate duty on these items. The as .....

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CIPL have suffered applicable excise duty. We notice that this factual position as asserted by the appellant have not been rebutted by the original authority in any finding. Though, excise liability arises immediately on manufacture it is only on removal of goods the duty is to be discharged. We find that the duty on finished excisable goods is liable to be paid upon clearance and in this case, there is no physical clearance of excisable goods by the appellant. On creation of new joint venture c .....

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redit Rules, 2004. The original authority held that the appellant deemed to have removed said capital goods from their premises to a new and separate factory premises of M/s. RCIPL consequent upon the sale and transfer of Chain Division. The relevant provision of Rule 3 (5) of Cenvat Credit Rules, 2004 relied upon by the original authority is reproduced as below:- (5) When inputs or capital goods, on which CENVAT credit has been taken, are removed as such from the factory, or premises of the pro .....

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nt shall not be required to be made when any capital goods are removed outside the premises of the provider of output service for providing the output service and the capital goods are brought back to the premises within 180 days, or such extended period not exceeding 180 days as may be permitted by the jurisdictional Deputy Commissioner of Central Excise, or Assistant Commissioner of Central Excise, as the case may be, of their removal. The admitted fact of the case is that, there is no physica .....

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cerned, there is no physical removal of either capital goods or raw materials at the time of sale and transfer of Chain Division. We find the central point to be considered for application of the above mentioned rule is whether or not the inputs or capital goods on which Cenvat credit has been taken are removed as such from the factory of the appellant. The Hon ble Supreme Court in the case of J.K. Spinning and Weaving Mills Ltd., & Anr.(supra) examined the scope of term removal. It was held .....

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observed as follows:- 9. We also find that one of the decisions cited by ld. Consultant for the Revenue, indeed, supports the assessee s case and the same is the Apex Courts decision in J.K Spinning and Weaving Mills case (supra). In that case, their lordships had examined, inter alia, the meaning of place of removal defined under Section 4(4)(b) of the Central Excise Act. After noting that the term removal had not been defined anywhere in the statute, the Apex Court observed as under :- There .....

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) of the CCR, 2004 would not be invocable unless there was physical removal of capital goods/inputs are in accordance with the ruling of the Apex Court. …. ….. ….. ….. 11. We are also in agreement with ld. Counsel s proposition that a deeming provision should be express. Any quasi-judicial authority, however learned, cannot deem the existence of a deeming provision where there is none in the text of the relevant statute. The Hon ble Supreme Court s judgment rendered i .....

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oval of goods under cover of invoice as provided under Rule 9 of the Cenvat Credit Rules, 2004 and there is nothing in Rule 3(5) of the Cenvat Credit Rules, 2004 to invoke the deeming fiction as insisted by the adjudicating authority. The language of Rule 3(5) is plain and simple. When the inputs or capital goods on which cenvat credit has been taken are removed as such from the factory, then subject to compliance of other requirements, the credit availed in respect of inputs on capital goods sh .....

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resent case. In view of the above, the interpretation with regard to Rule 3(5) of CCR, 2004, as made by the Tribunal in the present case is fully justified and it calls for no interference at the hands of this Court. 10. In view of the above settled decision, we find that the provisions of Rule 3 (5) are not attracted in the present case. The original authoritys attempt to distinguish the above findings is not appropriate. He found that these decisions are regarding change of ownership of whole .....

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of Sales Tax or Central Excise provision. We note that the invoices issued did not contain the details of any removal, mode of transport, rate of duty, duty payable thereon etc., as per the requirement of Rule 11 (2) of Central Excise Rules, 2002. We also note that based on these invoices no credit can be availed by any buyer as these are not in terms of Rule 9 of Cenvat Credit Rules, 2004. In view of settled legal position regarding need for physical removal of capital goods or inputs, in order .....

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