1. The facts of the case are that appellants were manufacturers of cotton yarn on cones. Their factory was earlier located at Coimbatore. Appellant transferred the manufacturing business of this unit to their sister unit located at Hindupur, Andhra Pradesh. Such transfer involved transfer of capital goods from Coimbatore unit to the Hindupur unit. Department took the view that these transfers would amount to 'removal of capital goods as such' attracting provisions of Rule 3(5) of the Cenvat Credit Rules, 2004 (CCR) requiring the appellants to pay up an amount equal to the cenvat credit availed on the said goods. Accordingly, show cause notice dt. 05.03.2008 was issued, inter alia proposing demand of an amount of Rs. 26,30,746/- with interest thereon and imposition of penalty under Rule 15 (1) of the CCR. These proposals were confirmed by the original authority vide an order dt. 10.09.2008. In appeal, the Commissioner (Appeals) dt. 26.02.2009 set aside the penalty imposed by the original authority, however upheld the remaining part of the order. In further appeal, CESTAT Chennai vide a Final Order No. 935/2009 allowed the appeal by way of remand to the lower appellate authority for de novo proceedings which was complied with vide the impugned order No. 60/2010 dt. 09.04.2010 wherein the lower appellate authority except for waiver of penalty rejected the appeal filed by the appellants. Hence the appellants are once more before this Tribunal.
2. Today when the matter came up for hearing, on behalf of the appellant, Ld. Counsel Shri Raghavan Ramabhadran made various submissions which can be broadly summarised as under:
i) The Cenvat credit availed on the capital goods transferred to Hindupur factory by the Appellant is permitted by Rule 10 of CCR, Rule 10(1) of CCR which allows transfer of unutilized Cenvat credit, inter alia, when the manufacturer shifts his factory to another site. Therefore, the Cenvat credit availed by the Appellant on the impugned capital goods transferred, which remain unutilised as on the date of such transfer, can be transferred to Hindupur Unit and not payable to the department. Reliance is placed on the decision of the Hon'ble High Court of Madras in CCE v. Featherlite Products (P) Ltd: 2017 (353) E.L.T. 439 (Mad.)].
ii) As per Rule 10(3) of CCR, Cenvat credit on transfer of capital goods is available if the capital goods so transferred are duly accounted for to the satisfaction of the Deputy Commissioner of Central Excise/Assistant Commissioner of Central Excise. The SCN admits that "here capital goods are not cleared as waste & scrap but as machines (capital goods) which are in working condition and are put to use for taking production in their factory at Hindpur". Therefore, the requirement under Rule 10(3) stands satisfied.
iii) Rule 3(5) of CCR requires payment of an amount equivalent to Cenvat credit if the capital goods are removed 'as such'. The use of term 'as such' clearly indicates that clearance of unused capital goods only is covered under Rule 3(5) and not capital goods which was already put to use before clearance. In the present case, it is not disputed that the capital goods transferred to Hindpur Factory were already used by the Appellant in their factory. Therefore, the provisions of Rule 3(5) requiring reversal of full Cenvat credit availed on capital goods transferred is not attracted.
3. On the other hand, Ld. A.R. Shri S. Govindarajan supports the impugned order. He also submits that for removals of this type provisions of Rule 3(5) of the CCR alone would be applicable, hence appellants are very much required to pay back the total quantum of credit availed in respect of the capital goods.
4. Heard both sides and have gone through the facts.
5. In para 2(i) of the show cause notice dt. 05.03.2008, it is narrated that appellants, vide their letter dt. 21.04.2007, addressed to the jurisdictional Range Superintendent, Coimbatore had intimated that they propose to transfer the business after shutting down production activities in the existing unit and remove the capital goods to their unit at Hindupur. It is also noted that vide a subsequent letter dt. 22.06.2007, appellants had informed concerned Excise authorities that they had completed the removal of capital goods from their factory and stopped production from 08.06.2007. In para 2(v) of the same notice, it is indicated that 'the capital goods are not cleared as waste and scrap but as machines (capital goods) which are in working condition and are put to use for taking production in their factory at Hindupur'. However, based on these very facts, the department has found it proper and arrived at a conclusion that for such removals, Rule 3(5) of the CCR would only be applicable which requires the appellant to pay back the credit availed on the capital goods at the time when they were brought into their factory.
6.1 We are unable to fathom such a conclusion. True, Rule 3(5) of CCR does require the manufacturer of final products to pay amount equal to credit availed in respect of the inputs or capital goods removed. However, the impugned removals are not in the nature of removal of goods for sale or to other buyers or stock transfer etc. On the other hand, these capital goods have been removed only on account of closing down of the existing unit at Coimbatore and its shifting to the Hindupur.
6.2 Rule 10 of the CCR has laid down special provisions for transfer of cenvat credit in case, inter alia of shifting of rectory of a manufacturer to another site, or on account of change of ownership, sale etc. The relevant provisions of Rule 10 are reproduced as under :
"RULE 10. Transfer of CENVAT credit.--(1) If a manufacturer of the final products shifts his factory to another site or the factory is transferred on account of change in ownership or on account of sale, merger, amalgamation, lease or transfer of the factory to a joint venture with the specific provision for transfer of liabilities of such factory, then, the manufacturer shall be allowed to transfer the CENVAT credit lying unutilized in his accounts to such transferred, sold, merged, leased or amalgamated factory.
(2) If a provider of output service shifts or transfers his business on account of change in ownership or on account of sale, merger, amalgamation, lease or transfer of the business to a joint venture with the specific provision for transfer of liabilities of such business, then, the provider of output service shall be allowed to transfer the CENVAT credit lying unutilized in his accounts to such transferred, sold, merged, leased or amalgamated business.
(3) The transfer of the CENVAT credit under sub-rules (1) and (2) shall be allowed only if the stock of inputs as such or in process, or the capital goods is also transferred along with the factory or business premises to the new site or ownership and the inputs, or capital goods, on which credit has been availed of are duly accounted for to the satisfaction of the Deputy Commissioner of Central Excise or, as the case may be, the Assistant Commissioner of Central Excise."
6.3 Evidently then, Rule 10 is a special provision within the same CCR 2004 specifically given for such situations. Hence by the maxim of Generalia Specialibus Non Derogant, the provisions of Rule 10 will take precedence and override the general provisions in respect of removal of capital goods found in Rule 3(5) ibid. In our considered opinion therefore, the provisions of Rule 10 alone will have direct bearing in respect of these removals.
6.4 We also find that conditionalities of Rule 10 given in sub-rule (3) have also been complied with. Hence appellants have not fallen foul of Rule 10 of the CCR and are very much eligible to transfer the credit amount along with capital goods so transferred.
6.5 In arriving at this decision, we find sustenance in a number of decisions of higher appellate forums. The Hon'ble High Court of Karnataka in the case of CCE Bangalore-II Vs. Solectron Centum Electronics Ltd : 2014 (309) ELT 479 (Kar.) has held that prior to 13.11.2007 there was no duty payable in respect of capital goods which was used before it is removed. The relevant portion of the judgment is reproduced as under:
"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."
This proviso was added by a Notification No. 39/2007 dated 13-11-2007. Therefore, prior to 13-11-2007, there was no duty payable in respect of capital goods which was used before it is removed. In that view of the matter, second question of law is answered in favour of the assessee and against the Revenue."
The Tribunal in Jamna Auto Industries Ltd. Vs. CCE Indore : 2001 (130) ELT 181 (Tri.-Del) while considering an identical issue under the erstwhile Central Excise Rules, 1944 has held as under:
"10. We have heard the rival submissions. On careful consideration of the submissions made, case law cited and the evidence on record, we note that the issue is whether change in transfer is removal. The contention of the Department is that its removal under the Modvat scheme and is covered by Rule 57F(2). As against this the contention of the appellant is that removal is covered by Rules 9 & 49 and that under no circumstance, there has been a removal in the instant case in terms of Rules 9 & 49. It was also contended for the appellants that sub-rule (20) and sub-rule (21) are a self contained code covering both transfer of credits and transfer of inputs and since it was self contained, the question of application of Rule 57F(2) does not ar
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ise is applied to the facts of the present case then sub-rule (20) and sub-rule (21) become redundant. We find that there is force in the arguments of the ld. Counsel for the appellants sub-rule (20) and sub-rule (21) covers transfer of the credit lying in the books of the seller and sub-rule (21) covers the transfer of inputs lying in a stock with the seller on the date of sale. Similarly capital goods are covered by sub-rule 57S(5) and credit on capital goods is covered by Sub-rule (6). In view of these specific provisions covering the change in ownership of the factory, we hold that general provisions of Rule 57F(2) shall not be applicable to the facts of the present case. We, therefore, hold that the case of the appellants is covered by sub-rule (20) and sub-rule (21) of Rule 57F and for the purpose of capital goods and credit in respect of capital goods is covered by sub-rule 57S(5) and sub-rule 57S(6). The demand of duty is, therefore, set aside." 7. In the event, we find in favour of the appellant. Impugned order cannot then sustain and is therefore set aside. Appeal is allowed with consequential benefits, if any, as per law.