1. Appellants have filed this appeal against Order-in-Appeal No. GOA/CEX/SNS/02/2005, dated 31-5-2005 passed by Commissioner of Central Excise & Customs (Appeals), Goa. Brief facts of the case are that M/s. Kamko Food Products, Plot Nos. 80/81, Corlim Indl. Estate, Corlim, Goa-403110 are engaged in the manufacture of Sugar Confectionary Classifiable under 1704.90 of CETA, 1985. On scrutiny of the quarterly return filed for quarter ending December, 2002, it was observed that the assessee had cleared certain capital goods during the month of October, 2002 and December, 2002 valued at Rs. 6,73,940/- and Rs. 6,05,770/- respectively without payment of any Central Excise Duty or without reversing the Cenvat credit/Modvat credit availed on these capital goods at the time of receipt in the factory. It appeared that the assessee had not reversed anytime in the past the Modvat credit/Cenvat credit taken on these capital goods either under erstwhile Central Excise Rules, 1944 or Cenvat Credit Rules, 2001/2002. The said capital goods were initially procured by M/s. Unique Alliance Industries (a partnership firm) in 1997 and credit of duty paid on the said capital goods was taken and utilized for payment of duty on their final products. Subsequently the Plant, Machinery along with said capital goods of which credit was taken were sold to M/s. Kamko Food Products (a partnership firm) vide agreement for sale dated 16-11-2000 between the two partnership firms. Thus, the appellants became the owner of the said capital goods. The said capital goods were not manufactured by appellants, but procured by them, were removed at nil rate of duty during October, 2002-December, 2002 by virtue of the exemption Notification Nos. 8/2002-C.E, dated 1-3-2002 being availed by the assessee. Revenue felt that the benefit of this Notification is available only to excisable goods manufactured by the manufacturer and not to the goods procured by the manufacturer. Since, Modvat Credit was taken on the said capital goods at the material time of their receipt in the factory (M/s. Unique Alliance Industries) and ownership of which were subsequently vested with M/s. Kamko Food Products, (on account of its being sold by M/s. Unique Alliance to M/s. Kamko), revenue alleged that provisions of Cenvat Credit Rules, 2002 are applicable, particularly because M/s. Unique Alliance Industries and the assessee have claimed depreciation from time to time of these capital goods. As stipulated in Rule 3(4) of CCR, 2002, the assessee should pay an amount equal to the duty of Central Excise leviable on such goods on date of their removal.
2. A show cause notice demanding Rs. 2,04,674/- was issued to the appellants along with proposal for penalty under Cenvat Credit Rules, 2002. The Adjudicating Authority confirmed the demand along with interest and imposed penalty of Rs. 10,000/-. The party went in appeal. The Commissioner (Appeals) upheld the order of the Adjudicating Authority, aggrieved from which the appellants are before this Tribunal.
3. Ld. Advocate for the appellants argues that the duty should have been demanded by the Revenue from M/s. Unique Alliance Industries at the time of the sale of the capital goods. He referred to four invoices, Sr. Nos. 27 to 30 and stated that no credit has been taken by M/s. Unique Alliance Industries on items mentioned at Sr. Nos. 1 & 2 and the cooling plants mentioned at page 78 of the paper book. He relied upon the judgment of this Tribunal in the case of Hindustan Coca-Cola Beverages Pvt. Ltd. v. CCE, Thane-I-2015 (328) E.L.T. 496 (Tri. -Mumbai).
4. Ld. AR for the Revenue submits that Cenvat Credit Rules do not distinguish between the purchaser and the owner of the factory. Hence, the appellants were liable to pay the demand in terms of Rule 3(4) of CCR, 2002. He also invited attention to the notification No. 8/2002-C.E., dated 1-3-2002 and contended that the notification exempts clearances of excisable goods. Since the impugned goods were not manufactured by them, the appellants were not eligible for the benefit of S.S.I. Exemption.
5. Heard both the parties and perused the record.
6.1 The issue involved in this case is whether the Cenvat credit, which was availed by the appellants, predecessor in respect of capital goods, which were cleared by the appellants after procuring from the predecessor, is liable to be reversed by the appellants. As per the show cause notice, the appellants have cleared capital goods/machinery valued at Rs. 6,73,940/- and Rs. 6,05,770/- during October, 2002 and December, 2002 without payment of any Central Excise duty or without reversing the Cenvat credit. As these capital goods were not manufactured by the appellants, but were received as capital goods by M/s. Unique Alliance Industries and the ownership of said capital goods was subsequently vested with M/s. Kamko Food Products, it is alleged that the provisions of Cenvat Credit Rules were applicable on these goods and the appellants were required to pay an amount equal to the duty of Central Excise as required under Rule 3(4) of Cenvat Credit Rules, 2002.
6.2 We find that the Cenvat credit of duty paid on capital goods was taken by M/s. Unique Alliance Industries. The same was utilized by M/s. Unique Alliance Industries for payment of duty on their clearances of final products. By virtue of sale agreement dated 16-11-2000 with M/s. Kamko Food Products, the ownership of these capital goods was transferred to the appellants. Records show that there was sale of capital goods by M/s. Unique Alliance Industries and the appellants had not taken over the previous running unit with the responsibility of the liabilities. Para 5 of the Show Cause Notice mentions that the capital goods were actually used in the manufacture of appellant's final product viz. Orange Candy 400 gms, Mix Candy 400 gms, Orange Candy 1/2 kg (Fiesta), Mixed Candy 1/2 kg (Fiesta), I. Pcardamon I.P. Milk Magik 1/2 kg etc.
6.3 From the above factual matrix, it is evident that after procuring these capital goods, the appellants had used these goods for manufacture of their final product. Hence the applicability of Rule 3(4) of CCR, 2002 is in question because the capital goods were not being cleared as such.
6.4 The question of liability of duty on capital goods after their use was considered by Hon'ble Karnataka High Court in the case of CCE v. Solectron Centum Electronics Ltd : 2014 (309) E.L.T. 479 (Kar.) where Hon'ble High Court has analysed the term "as such" in the context of Rule 3(4) of CCR, 2004 and concluded as under:
"9. The next question is whether the assessee was not liable to pay any duty when capital goods after it is being used was removed to the EOU unit.
10. Rule 3 sub-rule (4) of Cenvat Credit Rules, 2002 reads as under:
"(4) When inputs or capital goods, on which: CENVAT credit has been taken, are removed as such from the factory, the manufacturer of the final products 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 7."
11. The liability to pay duty on capital goods arises after the capital goods have been removed as such. The word "as such" is being the subject matter of interpretation by the various Courts. Punjab and Haryana High Court in the case of Commissioner of Central Excise, Ludhiana v. Khalsa Cotspin (P) Ltd., reported in : 2011 (270) E.L.T. 349 (P & H) has held as under:
"The assessee having validly availed cenvat credit, same is required to be reversed only if goods were cleared in the same position without payment of excise duty. In the present case, it has been held by the Tribunal that goods were not cleared in the same position but after having been used and in such situation Rule 3(5) of the Rules will not apply."
12. Bombay High Court in the case of Cummins India Ltd. v. Commissioner of Central Excise, Pune-III reported in 2007 (219) E.L.T. 911 (Tri.-Mumbai) confirmed the order of the Appellate Tribunal which has held as under:
"The plain and simple meaning of expression "as such" would be that capital goods are removed without putting them to use. Admittedly, in the present case capital goods have been used for a period of more than 7 to 8 years. As such, interpretation given by the authorities below would lead to absurd results if an assessee is required to reverse the credit originally availed by them at the time of receipt of the capital goods, when the said capital goods are subsequently removed as old, damaged and unserviceable capital goods. This would defeat the very purpose of grant of facility of Modvat credit in respect of capital goods and would not be in accordance with the legislative intent."
13. The Delhi High Court in the matter of Harsh International (Khaini) Pvt. Ltd. v. Commissioner of Central Excise reported in : 2012 (281) E.L.T. 714 (Del.), after referring to the various judgments held as under:
"In the present case the appellant purchased the capital goods in the period between 2003 and 2005 and used them in its factory till they were sold to M/s. Harsh International (Khaini) Pvt. Ltd., in June and July, 2007. Thus the capital goods were used for a period of 2 to 4 years. They cannot, therefore, be stated, to be sold "as such" capital goods. They were sold as used capital goods."
14. Therefore, it is clear, till the law was amended as on 13-11-2007 in respect of used capital goods, there was no liability to pay duty. In fact, this is evident from the fact that in Cenvat Credit Rules, 2004, the proviso was added making the position clear which was not there in the earlier orders. The proviso reads thus:
"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."
Therefore, the provisions of Rule 3(4) of CCR, 2004 are not applicable in the facts of this case.
6.5 Admittedly, the period in the present case is before 13-11-2007. Following the above decision of Hon'ble Karnataka High Court, there is no liability to pay duty on clearance of impugned capital goods.
6.6 We also note that the appellants had only purchased the capital goods and had not taken over the previous running unit with the responsibility of liabilities. The premise
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that transfer of ownership of these goods to M/s. Kamko Food Products, fastens the liability of reversal of credit availed by the seller of the goods in the absence of sale of running unit is not legally sustainable. In this context, the case of Hindustan Coca-Cola Beverages Pvt. Ltd. v. CCE, Thane-I (supra) is pertinent wherein the Tribunal has held as under: "7.5 As regards the reliance by the Ld. AR on the decision of the Hon'ble Apex Court in the case of Macson Marbles Pvt. Ltd : 2003 (158) E.L.T. 424 (S.C.), I find that in that case there was a transfer of running industrial unit to the appellant therein hence the High Court has come to a conclusion that the successor is liable to discharge the Excise dues. In the case in hand, there is no excise dues which have been confirmed against the seller of the capital goods namely M/s. McCoy. In the absence of there being any dues that has been confirmed against M/s. McCoy, the same cannot be recovered from the main appellant." In view of the above, we find that the order of Commissioner (Appeals) is not sustainable. Accordingly, we set-aside the same and allow the appeal filed by the appellants.