Packaging India Pvt. Ltd vs Commissioner Of Central Excise

[Arising out of Order-In-Appeal No.128/2007 dt. 31.8.2007, OIA No.149/2007 (P) dt. 27.9.2007 and OIA No.188/2007 dt. 20.12.2007 all passed by the Commissioner of Central Excise (Appeals), Chennai]

Packaging India Pvt. Ltd. Appellant

Versus

Commissioner of Central Excise, Puducherry Respondent

Appearance:

Shri S. Venkatachalam, Advocate For the Appellant Shri B. Balamurugan, AC (AR) For the Respondent

CORAM:

Honble Shri R. Periasami, Technical Member

Date of hearing/decision :17.6.2015

FINAL ORDER No.40662-40664/2015

As the issue involved in all the three appeals arising out of 3 different OIAs is common, therefore they are taken up together.

2. In appeal No.E/808/2007 and Appeal No.E/155/2008 where the appellants have cleared the used and worn out cylinders/printing rollers as a scrap on payment of appropriate excise duty as per the transaction value. Revenue took a view that the goods in dispute are capital goods removed as such by the appellants. Therefore, entire credit availed on the rollers was demanded. In Appeal No.E/12/2008, appellants have removed Slitting Machine, Blown film plant, 3 Layer Blown Film Machine, Expert Lamination machine, Forklift truck which are old and used machineries on payment of duty on transaction value whereas the department demanded full reversal of credit as the capital goods are cleared as such. Commissioner (Appeals) has upheld the order. Hence the present appeal.

3. Ld. Advocate appearing for the appellant submitted written synopsis and submits that they have purchased the cylinders/printing rollers and used for printing of packaging material. He submits that the goods are fully used and once the engravings are worn out, there is no use of rollers and the same are cleared as scrap on payment of excise duty. He also submits that in respect of first appeal (E/808/07), the period pertains to April 2001 August 2005 where there was no provision to demand duty on removal of capital goods. Further, he submits that these goods were used as scrap. In appeal No.E/808/07, he submits that demand is hit by limitation as they have clearly mentioned in their invoice as to used rollers and paid appropriate of duty and included in monthly ER-I returns. He submits that they have clearly mentioned the description of the goods as scrap of steel rollers and there is no suppression of facts and extended period cannot be invoked. The department has also not allowed depreciation in the value on the used Rollers. In respect of appeal No.E/12/2008, he submits that they have cleared old and used machines which lost their utility value and they have paid appropriate excise duty on the transaction value. He submits that as per the amended provisions of Rule 3 (5A) of CCR'02 which came into effect from 16.5.2005 wherein specific clause was inserted where if the capital goods are cleared as waste and scrap, the manufacturer shall pay an amount equal to the duty leviable on the transaction value. He also submits that if the depreciation is allowed on the used goods, they have already paid excess duty as per transaction value. He submitted a work sheet. There was ambiguity on the removal of capital goods as such and it involves question of interpretation of rules and various High Court and Tribunal rulings held on this issue that no penalty is imposable. He relied on the Hon'ble Karnataka High Court's decision in CCE Bangalore Vs Solectron Centum Electronics Ltd. - 2014 (809) ELT 479 (Kar.). He relied this Tribunal order No.40405/2005 dt. 18.7.2014 in the case of CCE Salem Vs K.P.R. Mills Pvt. Ltd.

4. Ld. A.R reiterates the findings of the impugned order. What they purchased is cylinders/rollers and availed capital goods credit whereas while clearing the goods they misdeclared as scrap. The adjudicating authority has rightly demanded reversal of equivalent credit availed on the capital goods. He further submits that they have suppressed the facts and declared it as 'scrap' instead of used capital goods and also submits that machineries which were cleared are not scrap and not for melting. He further submits that rollers cleared to their own Unit II for re-engraving were returned back to appellant. Therefore, it cannot be called as scrap. The classification claimed by the appellant under heading 7204 should be of re-melting scrap which includes articles which can be repaired.

5. After hearing both sides, the short issue in this case relates to removal of cylinders/rollers which are used in printing of packaging materials. The appellants also cleared certain old and machineries used as a scrap. Both rollers and old and used goods were cleared on payment of appropriate excise duty as per the transaction value. Revenues only contention is that appellants availed credit on these capital goods and held that the capital goods are cleared as such and demanded reversal of entire credit.

6. I find that the period involved in respect of first appeal relates to April 2001 to August 2005 and the period in respect of second appeal relates to September 2005 to February 2007 and third is August 2005 to February 2006. The Rule 3(4) of CCR 2002 has been amended by notification No.13/03-CE (NT) dt. 1.3.2003 where the provisions were inserted for removal of inputs and capital goods removed as such and stipulates where the amount equal to the credit availed on such inputs or capital goods is to be paid by the manufacturer. Rule 3 (5A) was also introduced w.e.f. 16.5.2005 wherein specific provisions have been inserted that if the capital goods are cleared as waste and scrap, the manufacturer shall pay an amount equal to the duty leviable on transaction value. There is no dispute on the fact that these rollers are capital goods used and worn out. These goods were not cleared as such as held by the department but these are used and worn out. Once the engravings are worn out, it cannot be used in printing of material unless the engravings are redone which involves detailed processing of enameling, melting etc. which amounts to manufacture. The appellants have also cleared the goods in equal proportion to dealers also.

7. I find that on an identical issue, this Tribunal held that in respect of removal of old and used goods, duty is payable after allowing depreciation on the value by relying on Honble High Court of Madras order in the case of CCE Salem Vs Rogini Mills Ltd.  2011-TIOL-05-HC-MAD-CX. and also Larger Bench decision in the case of CCE Hyderabad Vs Navodhaya Plastic Industries Ltd.  2013-TIOL-1773-CESTAT-MAD-LB. The relevant para-5 of the Tribunal's order is reproduced as under :-

"5. In this regard the expression Capital Goods cleared as such appearing in Rule 3 (4) (c) of CCR, 2002, has been discussed at length in the Tribunals decision in the case of CCE, Chandigarh Vs. Raghav Alloys Ltd. (supra), which was upheld by the Honble High Court of Punjab & Haryana. Further, the Honble High Court of Madras in the case of CCE Vs. Rogini Mills Ltd. (supra), considered the above Tribunals decision (supra) and discussed on two main issues as under:-

"1. Whether the expression "as such" appearing in Rule 3(4)(C) of the Cenvat Credit Rules, 2002 would cover used as well as unused capital goods or not?

2. Whether the assessee is required to reverse credit equivalent to credit taken when used capital goods are removed from the factory or not?"

The Hon'ble High Court has held as under:-

"5. Though the contention of the learned Standing Counsel appears to be very sound in the first blush, we are not in a position to accede to the said submission. Rule 3(4) (C) of the 2004 Rules reads as under:

"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 7.1."

6. In the first place, the provision for reversal of the Cenvat credit availed has been provided for under Rule 3(4)(C) of the 2004 Rules. When we peruse the order of the Principal Bench, New Delhi in its order reported in 2009 (242) ELT 124, we find a reference to the Boards Circular No. 643/34/2002-CX dated 01.07.02, a Boards letter bearing No. 495/16/1993-Cus.VI, dated 26.05.1993 and also a provision, which was added to Rule 3(5) of Cenvat Credit Rules 2004 (corresponding to Rule 3(4) of Cenvat Credit Rules, 2002), which stipulated that the capital goods on which Cenvat credit had been taken or removed after being used, the manufacturer should pay an amount equal to the Cenvat credit taken on the said capital goods reduced by 2.5% for each quarter of a year or part thereof from the date of taking the Cenvat credit. The Boards Circular dated 01.07.02 stated that the capital goods on which Cenvat credit had been taken or cleared under Rule 3(4), the manufacturer would be required to pay an amount equal to the duty at the rate prevailing on the date of clearance and on the value determined under the provisions of Section 4 of the Central Excise Act and the depreciation as per the rates fixed in the Boards letter dated 26.05.93 should be allowed.

7. On a conjoint reading of Rule 3(4) with the provision added to Rule 3(5) with effect from 13.11.2007, the Boards Circular dated 01.07.02 along with Boards letter dated 26.05.1993, it is quite clear that the inputs or capital goods when disposed of after putting it into some use over a period of time, then the assessee would be entitled to reverse whatever Cenvat credit availed on the value to be assessed on the date of such subsequent sale of capital goods. Such a conclusion by relying upon the above referred to Boards Circular and the letter as well as the addition of proviso to Rule 3(5) with effect from 13.11.2007, is the manner in which the expression as suchused in Rule 3(4) can be interpreted. Consequently, the interpretation put in the order of the Principal Bench reported in 2009 (242) ELT 124 merits acceptance. The order of the Tribunal impugned in this appeal applying the said ratio of the Principal Bench is, therefore, perfectly justified."

The Hon'ble Madras High Court upheld the Tribunals decision that used capital goods are cleared after put into use, on which cenvat credit has been availed, the respondent discharged the duty on the depreciated value of the used capital goods in terms of the Boards Circular dated 01.07.02 read with CBEC letter dated 26.05.93."

8. In consistent of above decision, I hold that in the present case demand of reversal of entire credit on used and worn out capital goods cleared is not sustainable as these goods are cleared as such but used and worn out Rollers. Accordingly the demand is restricted to the extent on the value arrived after allowing depreciation. The ld. Advocate also submits that appellants have already paid duty in excess as per transaction value. I hold that since the appellants have discharged duty as per the transaction value on the goods declared it as scrap, the differential duty, if any, is demandable to the extent on the value of capital goods after allowing depreciation as held by the Honble Madras High Court and Tribunals Larger Bench (supra).

9. I hold that the appellants already paid excise duty as per the transaction value and if the depreciation value is taken into account and if it results in excess payment, no amount is payable by appellant and the appellants are not entitled for any refund. Adjudicating authority is directed to re-quantify the amount after allowing depreciation value only to this extent Appellants shall produce all the relevant details before the original authority. In the result all the three appeals are allowed subject to the re-quantification by the original authority.

(Dictated and pronounced in open court)

(R. PERIASAMI) TECHNICAL MEMBER

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