1. The present appeal filed by M/s Salona Cotspin Ltd. Sathyamangalam is against the order of the Commissioner (Appeals), Salem upholding the demand of Rs. 48,075/- being differential duty payable on capital goods removed by the appellants, imposition of penalty of Rs. 48,075/- and interest due under Section 11AB of the Central Excise Act, 1944. The facts of the case are that the appellants had removed different items of used textile machinery on 11.2.2002 and 2.5.2003. On the item cleared on 11.2.2002, the appellants paid duty on its value after applying depreciation on the purchase price of the item @ 2.5% per quarter of its use. On the other two items of machinery cleared on 2.5.2003, the appellants paid duty on the invoice value.
2. At the time of clearance of the first item, the relevant Rule 3(4) of Cenvat Credit Rules, 2000 read as follows: 3 (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 duty of excise which is leviable on such goods at the rate applicable to such goods on the date of such removal and on the value determined for such goods under Section 4 or Section 4A of the Act, as they case may be and such removal shall be made under the cover of an invoice referred to in Rule 7.
When the remaining items of machinery were removed on 2.5.2003, the relevant rule read as follows: (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.
3. As the provisions that existed during the material periods required the assessee to pay duty on the capital goods as if they were manufactured by the appellants in the first case and they required the appellants to reverse the credit originally availed in respect of the items removed on 2.5.2003, proceedings were initiated to recover the differential duty from the appellants which culminated in Order-in-Original and the impugned order.
4. Shri S. Jai Kumar, learned Advocate arguing the case of the appellants submitted that the provisions covered removals of the 'capital goods as such' and not 'used capital goods'. In the first instance, they had followed the erstwhile Rule 57S(2) for arriving at the value on which duty had to be paid on removal of used capital goods. In May 2003, they had cleared the capital goods on payment of duty on the invoice value which was in consonance with the CBEC's Circular No. 64/34/2002 dated 1.7.2002 which prescribed that when capital goods were removed on sale, transaction value shall be adopted for payment of duty. Ld. advocate also cited the decision of the Bangalore Bench of the Tribunal in the case of Madura Coats Pvt. Ltd. v. CCE Tirunelveli 2005-TIOL-891-CESTAT-BANG wherein the Hon'ble Tribunal held that assessees were not required to pay duty when they sold 'used capital goods'. The Tribunal held that Rule 3(4) of the Cenvat Credit Rules, 2001/2002 applied only to 'capital goods removed as such' i.e. new goods or goods which were not put to use.
5. Ld. Advocate also submitted that the department was aware of these removals as they had submitted the particulars of clearance and payment of duty of the impugned goods in extracts of PLA submitted along with RT-12s for the relevant periods. Therefore, the SCN issued on 30.8.2004 was clearly time-barred and the proceedings were not sustainable.
6. Smt. R. Bhagya Devi, ld. SDR arguing for the respondent reiterated the arguments of the lower authorities and submitted that the demand of duty and interest and imposition of penalty were sustainable. She cited the larger bench decision of the Tribunal in the case of Eicher Tractors v. CCE Jaipur , and submitted that as per that decision, the Tribunal had held that during the period of Modvat Rules, Cenvat Credit Rules 2001/2002 and the period subsequent to issue of Notification No. l3/2003-CE(NT) dated 1.3.2003. the assessees who removed capital goods as such could remove them on reversal of the credit originally availed. The Tribunal had referred to all the existing circulars of the Board on the subject in arriving at the above decision. Therefore, the appellants had to reverse the credit they had originally availed at the time of removing of the capital goods.
7. I have carefully considered the rival submissions. The appellants have removed 'used capital goods' after applying depreciation as provided in the erstwhile Rule 57S(2) in respect of the machine removed on 11.2.2002 when the legal provisions required that they pay duty on the transaction value. They removed the remaining goods on payment of duty on transaction value when the relevant rules had changed requiring them to reverse the credit originally availed. In this context, the definition of the expression 'capital goods removed as such' interpreted by the Bangalore Bench of the Tribunal is relevant.
According to the Hon'ble Tribunal, 'used capital goods' are not covered by Rule 3(4) of Cenvat Credit Rules, 2001/2002. Therefore, the appellants' argument that they are not required to pay even the duty they paid carries considerable force. More over, it is difficult to deny the assertion that the SCN was issued in this case much beyond the normal period with no grounds to justify invocation of larger period.
Therefore, the proceedings initiated with the SCN dated 30.8.2004 are not sustainable. Accordingly, I set aside the impugned order and allow the appeal.