BILT INDUSTRIAL PACKAGING Vs. COMMISSIONER OF CENTRAL EXCISE

JUDGEMENT

(1.) THE appellants were engaged in the manufacture of paper and paper board in their factory situate at Mettupalayam. They sold the factory to M/s. ITC Ltd. under a Deed of Conveyance dated 19.03.2004 and subsequently surrendered their Central Excise Registration Certificate for cancellation. Under the said Deed of Conveyance, the title to the entire immovable property including land, building, plant and machinery embedded to earth as also title to all movable capital goods in the factory stood transferred to M/s. ITC Ltd. Since the date of such transfer, M/s. ITC Ltd. are running the factory under their own licence. The appellants had taken capital goods credit totalling to Rs. 8,19,70,448/ - during the period from June, 2000 to March, 2004 and had already utilised the same prior to alienation of their factory. The department took the view that the above alienation of property by the appellants involved removal of the capital goods from their factory and, therefore, they were liable to pay an amount equivalent to the capital goods credit under Rule 3(4) of the CENVAT Credit Rules, 2002. Accordingly, in a show -cause notice, the department demanded the above amount from the appellants under Rule 3(4) ibid read with Section 11A of the Central Excise Act together with interest thereon under Section 11AB of the Act and also proposed to impose penalty on them under Rule 25 of the Central Excise Rules, 2002. The appellants filed written submissions with the Commissioner contesting the above demand on numerous grounds. In adjudication of the dispute, the Commissioner confirmed the demand of duty (with interest thereon) against the appellants and imposed on them a penalty of Rs. 50 lakhs. Hence the present appeal.

(2.) THE main challenge in this appeal is against the demand made under Sub -rule (4) of Rule 3 of the CENVAT Credit Rules, 2002 (CCR, for short), which 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.

(3.) LEARNED Counsel for the appellants argued as follows: (a) Where the factory with the capital goods continuing to be installed therein had been transferred in toto, it could not be said that the capital goods had been removed from the factory; (b) even if it be assumed that there was removal of capital goods from the factory, it could not be said that the capital goods were removed 'as such' from the factory inasmuch as, at the time of the removal, the goods were not in the same fresh condition as they were at the time of installation in the factory (in other words, removal of used capital goods could not be termed removal as such); (c) only a case of physical removal of capital goods from the factory would attract Rule 3(4) of the CCR and mere change in ownership of the factory would not tantamount to such removal; (d) there is no specific provision in the CCR to cover a case of transfer of inputs and capital goods associated with change in ownership of factory; and (e) where credit on capital goods has been validly taken and lawfully utilised, there can be no demand in relation to the same by the Revenue in the absence of specific enabling provision. Learned Counsel also cited case law in connection with the above arguments. He relied on the Tribunal's decision in Jamna Auto Industries Ltd. v. Commissioner of Central Excise, Indore , wherein a demand of duty on capital goods under Rule 57U(4) of the erstwhile Central Excise Rules, 1944 was set aside by the Tribunal after holding that Rule 57F(2) was not applicable to the case (in which there was change of ownership of factory along with MODVAT credit -availed inputs and capital goods) and that the case was covered by Sub -rules (20) and (21) of Rule 57F. He also relied on the decision in Whirlpool of India Ltd. v. Commissioner of Customs, New Delhi 2003 (58) R.L.T. 241 (CESTAT -Del.), wherein it was held that credit availed on capital goods was not recoverable on the ground of sale of factory by the assessee. Reliance was also placed on the decision in Metzeller Automotive Profiles India (P) Ltd. v. Commissioner of Central Excise, Ghaziabad , wherein denial of MODVAT credit availed on capital goods and inputs in a factory which underwent change of ownership was set aside.