Customs, Excise & Service Tax Appellate Tribunal South Zonal Bench

CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL SOUTH ZONAL BENCH CHENNAI

LARGER BENCH

Appeal No.E/392/2008

[Arising out of Order-in-Appeal No.01/2008(H-III) (D) (CE) dt. 14.02.2008 passed by the Commissioner of Customs, Excise & Service Tax (Appeals-III), Hyderabad]

Date of Hearing : 18-11-2013 Date of Decision : 18-11-2013

Commissioner of Central Excise Hyderabad-III Appellant

Versus

Navodhaya Plastic Industries Ltd. Respondent

Appearance: Shri Ganesha Haavanur, Additional Commissioner (AR) For the Appellant-Revenue

Shri G. Natarajan, Advocate For the Respondent-assessee.

Coram: Hon’ble Mr. Justice G. Raghuram, President Hon’ble Mr. P.K. Das, Judicial Member Hon’ble Mr. Mathew John, Technical Member

MISC Order No.42706/2013

Per Mathew John

1. In this proceeding, a reference made by a Single Member

Bench of the Tribunal at Bangalore to a Larger Bench for deciding an issue is being considered. The reference was made by MISC

Order No.260/2010 dt. 30.4.2010. 2

2. The relevant facts of the case that arise for consideration are that the respondents are manufacturers of PVC pipes falling under Chapter 39 of the Schedule of the Central Excise Tariff Act,

1985. They had taken cenvat credit on certain capital goods during

2004 and 2005 and they had removed such capital goods vide invoice dt. 26.6.2006 by paying duty on transaction value.

Revenue was of the view that as per Rule 3 (5) of Cenvat Credit

Rules 2004 when capital goods on which Cenvat credit had been taken were removed from the factory, the manufacturer of the final product shall pay an amount equal to the credit availed in respect of such capital goods. A show cause notice was issued in this regard demanding difference between credit taken and duty paid on transaction value at the time of clearence. The adjudicating authority dropped the demand. This order has been affirmed by

Commissioner (Appeal) also. Against the order of the

Commissioner (Appeal) Revenue filed appeal before the Tribunal.

While hearing the appeal, Learned Member of the Tribunal noticed that there were two decisions of the Tribunal on the issue one of the Larger Bench of the Tribunal in Modernova Plastyles Pvt. Ltd.

–CCE- 2008 (232) E.L.T. 29 (Tri. - LB) and another in the case of

CCE Vs. Geeta Industries Pvt. Ltd. - 2008 (232) E.L.T. 350 (Tri. -

Del.) of a Division Bench of the Tribunal. Apparently the decision of the Larger Bench had not decided some aspect of the dispute in question and therefore Learned Member has referred the following issues to be decided by this Larger Bench : 3

(i) Whether the decision of Larger Bench in the case of Modernova Plastyles Pvt. Ltd. is silent on the depreciation aspect to be granted on the capital goods removed after use and proportionate reversal of credit and whether the same needs to be addressed to by a further Larger Bench.

(ii) Whether the decision of the Division Bench in the case of Geeta Industries Pvt. Ltd. has correctly granted the benefit of depreciation and subsequent proportionate reversal of credit, in the absence of specific provisions.

3. After the Single Member Bench made this reference vide

Misc. Order No.260/10 dt. 30-04-2010, the issue has been considered by different High Courts in the following cases:-

(i) Commissioner v. Cummins India Ltd. - 2009 (234) E.L.T. A120 (Bom.)]

(ii) CCE Chandigarh Vs Raghav Alloys Ltd. - 2011 (268) ELT 161 (P&H);

(iii) CCE Salem Vs Rogini Mills Ltd. - 2011 (264) ELT 367 (Mad.) and

(iv) Harsh International (Khaini) Pvt. Ltd. Vs CCE - 2012 (281) ELT 714 (Del.).

4. In all the above decisions, the view taken is that when capital goods are removed after use, it cannot be considered as a case of removal of goods “as such” for the purpose of reversing the entire credit taken at the time of receiving the capital goods as prescribed in Rule 3 (5) of CCR 2004.

5. However, on the question whether there is any need for reversal of any part of the credit that is taken has been answered differently in the above decisions. In the case of Cummins India credit reversed based on transaction value was approved by the

Bombay High Court. This was a case where the capital goods were cleared as scrap. In the case of Raghav Alloys (supra) the

Hon. Punjab and Haryana High Court ordered reversal of credit 4

after allowing deduction at the rate of 2.5% of the credit for each quarter of use of the machine as prescribed under C.B.E. & C.

Circular No. 643/34/2002-CX., dated 1-7-2002. In the case of

Rogini Mills Ltd. (supra), the Madras High Court also upheld a decision of the Tribunal ordering reversal of Cenvat credit of 2.5% for each quarter of a year from the date of taking of Cenvat credit.

However, the Hon’ble Delhi High Court in the case of Harsh

International (Khaini) Pvt. Ltd. (supra) held that there was no provision in the Cenvat Credit Rules during the relevant period for reversal of any amount when used capital goods were removed and therefore no demand was sustainable. Thus, though there is agreement on the issue that the full credit taken at the time of receipt of the goods need not be reversed, the views of different

High Courts has differed in the matter of quantum of credit to be reversed.

6. We have heard both sides and examined the legal provisions and the decisions cited above. The dispute is for the period June 2006. During the period 01-03-97 to 01-04-2000

Rules applicable for such situation was under:

57S. Manner of utilisation of the capital goods and the credit allowed in respect of duty paid thereon. – (1) The capital goods in respect of which credit of specified duty has been allowed under rule 57Q may be –

(i) used in the factory of the manufacturer of the final products; or

(ii) removed, after intimating the Assistant Commissioner of Central Excise, having jurisdiction over the factory and after obtaining dated acknowledgement of the same, from the factory for home consumption or for export, on payment of appropriate duty of excise leviable thereon or for export under 5

bond, as if such capital goods have been manufactured in the said factory.

(2) In a case, -

(a) where a capital goods are removed without being used from the factory for home consumption, on payment of duty, or for export on payment of duty of excise, such duty of excise shall in no case be less than the amount of credit that has been allowed in respect of such capital goods under rule 57Q:

(b) where capital goods are removed after being used in the factory for home consumption on payment of duty of excise or for export under rebate on payment of duty of excise, such duty of excise shall be calculated by allowing deduction of 2.5 per cent of credit taken for each quarter of a year of use or fraction thereof, from the date of availing credit under rule 57Q;

7. During 01-09-2004 to 13-11-2007 the provision in force read as under:

With effect from 10.09.2004, when new Cenvat Credit Rules, 2004 were introduced, the relevant rule, i.e. Rule 3 (5), read as below :

When inputs or capital goods, on which CENVAT credit has been taken, are removed as such from the factory, or premises of the provider of output service, the manufacturer of the final products or provider of output service, as the case may be, shall pay an amount equal to the credit availed in respect of such inputs or capital goods and such removal shall be made under the cover of an invoice referred to in rule 9.

8. During the period when similar provision was in force CBEC had issued Circular No. 643/34/2002-CX., dated 1-7-2002 to the effect that credit amount to be reversed will be reduced by 2.5% per quarter of use of the machinery.

9. After 13-11-2007 the applicable provisions read as under:

With effect from 13.11.2007, the following provision has been introduced in Rule 3 (5) ibid.

Provided also that if the capital goods on which CENVAT credit has been taken are removed after being used, the manufacturer or provider of output service shall pay an amount equal to the CENVAT credit taken on the said capital goods reduced by 2.5 per cent for each quarter of a year or part thereof from the date of taking the Cenvat Credit. 6

10. The use of capital goods is to spread over many years. A decision to the effect that assessees can bring in capital goods, use it for a few days and then remove it without reversal of any

Cenvat credit taken is not consistent with the overall scheme of

Cenvat credit and can lead to abuse of the scheme. Considering this aspect and the legislative history and the circular of CBEC, we are of the view that we should respectfully follow the decision of the Hon’ble Madras High Court in the case of Commissioner of

Central Excise, Salem Vs Rogini Mills Ltd. (supra) and the reference made to this Larger Bench is answered accordingly.

11. The matter may be placed before Regular Bench of the

Tribunal for disposal of appeal in accordance with our answer to the reference order, spelt out above.

(Operative part pronounced in open court on 18-11-2013)

(JUSTICE G.RAGHURAM) PRESIDENT

(P.K.DAS) JUDICIAL MEMBER

(MATHEW JOHN) TECHNICAL MEMBER