Interpretation issue on Removal of Capital Goods not amounts to suppression of fact, not liable for Penalty u/s 15(2) r/w S.11AC: CESTAT [Read Order]

While considering a bunch of appeals, the Delhi bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) has held that the Interpretation issue on the removal of capital goods not amounts to suppression of fact, not liable for penalty u/s 15(2) r/w S.11AC of the Central Excise Act,1944.

Sh.  S. C. Kamra, Advocate for the appellant and Sh.  Rakesh Agarwal, Authorised Representative for the respondent.

The assessees filed an order of adjudication passed by the Additional Director General (Adjudication), DGGSTI whereby cenvat credit has been demanded on capital goods power plant under Rule 3(5A) of Cenvat Credit Rules, 2004 on the appellant company along with penalty, penalties have also been imposed on the Director of the appellant Sh. Gurmit Singh Mann of Rs. 50 lakhs under Rule 26.

The appellant units are engaged in the manufacture of sugar, molasses and distillery products, which are dutiable. Both the appellant units are equipped with a power plant (co-generation plant) within their factory company unit, electricity is generated by the use of steam and fuel baggage is used.  The electricity / electrical energy is covered under CETH 27160000 and is chargeable to a Nil rate of duty.

The appellant availed MODVAT/ CENVAT credit in the past on procurement of inputs(used in the fabrication of capital goods), capital goods/plant and machinery to set up of power plant. Appellant No. 1 transferred the entire power plant to M/s SPPL on a slump sale basis for an aggregate sale consideration of Rs. 85.00 Cr. without shifting or removing physically the capital goods as such from the registered premises. 

Counsel for the appellants Sh. S. C. Kamra argued that the provisions of Rule 3(5A) of CCR, 2004 are applicable when the capital goods, on which CENVAT credit has been taken, are removed, after being used, whether as capital goods or waste and scrap. The basic criteria are the “removal” of capital goods and not the sale-purchase of capital goods. 

In light of the ruling of the Madras High Court in the case of Dalmia Cement (supra), a Coram of Mr Anil Choudhary, member (judicial) and Mr Raju, member (technical)held that “there is no removal of capital assets/power plant. As There has been no removal, the provision of Rule 3(5A) of Cenvat Credit Rules is not attracted.”  The impugned order was set aside by the Tribunal and allowed the appeals.

To Read the full text of the Order CLICK HERE

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