M/s. Solectron Centum Electronics Ltd., (for short hereinafter referred to as "assessee") is situated at No.44, KHB Industrial Area, Yelahanka New Town, Bangalore-64, which is registered under the Central Excise Registration No.AAACC7369PXM001. They are manufacturing PCB Assembly falling under Chapter 8534. The said unit is also having an EHTP unit registered vide Registration No.AAACC7369PXM002 manufacturing Hybrid Micro Circuit and Piezo Crystal Oscillator falling under Chapter 8542 and 8541. During the audit, it was observed that the assessee has removed certain inputs and used capital goods without payment of duty, on both of which Cenvat Credits were availed to their own EHTP unit. Therefore, it was pointed out by the Audit that they have to reverse the Cenvat Credit. However, the assessee contended that the clearances were made against CT-3 certificate issued in terms of Notification No.22/2003 dated 31.03.2003 by the customs authorities and that such clearances made to EOUs/EHTPs have the status of deemed exports and therefore, there is no need to reverse the credit involved. The Audit contended that the issuance of a CT-3 certificate does not automatically mean that the subject goods can be cleared without payment of duty or without reversing the credit involved, if it turns out that the CT-3 certificate has been issued beyond the scope or in contravention of the Notification No.22/2003 dated 31.03.2003 under which the said certificate had been issued. Condition No.(1) of para (1) of Notification No.22/2003 specifically states that the user industry should bring the excisable goods directly from the factory of manufacture or warehouse. As such, the impugned inputs and capital goods cleared as such are not eligible for the benefits of this Notification, since they are neither manufactured nor deemed to be manufactured in the factory from where they were removed. In reply, the assessee amongst other things stated that during early 2003 i.e., between March 2003 to May 2003, they shifted some of the duty paid raw material and used capital goods on which credit was taken from DTA unit to EHTP unit, after duly obtaining permission from the department. Further, as per the audit contention the assessee has discharged duty amount of Rs.22,21,477/- through Cenvat debit under protest as per their letter dated 22.11.2004. Therefore, the assessee filed an application for refund of Rs.22,21,477/- paid under protest. The Deputy Commissioner of Central Excise, "C" Division adjudicated the dispute and rejected the refund application filed by the assessee by his order dated 31.03.2005. Aggrieved by the said order, the assessee preferred an appeal to the Commissioner of Central Excise (appeals). The appellate authority held that assessee knowingly cleared the item under CT-3 certificate without giving full information as brought out by the lower authority. The condition that the excisable goods should be brought directly from the factory of manufacture or warehouse is not fulfilled. Therefore, he found no merit in the appeal and rejected the same. Aggrieved by the said order the assessee preferred an appeal before the CESTAT. The Tribunal by the impugned order dated 04.08.2008 held that the capital goods had been removed only after considerable use and therefore there was no liability to pay any duty or credit on capital goods and therefore, set aside the order of the Original Authority as well as Appellate Authority and directed the refund of Rs.22,21,477/- claimed by the assessee. Aggrieved by the said order, the Revenue is in appeal. This Court after hearing both the parties by its judgment dated 08.03.2011 declined to interfere with the order passed by the Tribunal and dismissed the appeal. Aggrieved by the same, the Revenue preferred an appeal to the Apex Court in Civil Appeal No.2844/2014. The Apex Court has set aside the order passed by this Court and remanded the matter to the High Court to decide the case in the light of the judgment of the larger bench of the Tribunal in
Lakshmi Automatic Loom Works Ltd., vs. Commissioner of Central Excise, Tricy ( 2008 (232) E.L.T. 428 (Tri-LB)on the ground that said judgment was neither brought to the notice of the High Court nor the High Court noticed it. That is how, the appeal is listed before us for fresh hearing.
2. Learned counsel for the Revenue assailing the impugned order contends, as the assessee has not received the excisable goods directly from the factory of manufacture or warehouse, the condition stipulated in the Notification No.22/2003 is not fulfilled. In the instant case, the assessee has imported the impugned capital goods on which Cenvat credit has been availed and cleared without payment of duty to EHTP under the cover of CT-3 and therefore, the impugned order passed by the Tribunal is not legal and requires to be set aside.
3. Per contra, learned counsel appearing for the assessee submitted, the assessee is having the DTA unit in the ground floor and EHTP unit in the First floor. When the assessee purchased the capital goods as well as raw material, it has paid excise duty. With the permission of the authority, it has transmitted or shifted the capital goods after its use and raw material as such to the EHTP unit. When it purchased the goods it had availed Cenvat credit. During the audit, the authorities compelled the assessee to reverse the Cenvat credit which was illegal. It reversed the Cenvat credit under protest and thereafter filed an application for refund. When the authorities have permitted the transmission of raw material and used capital goods which have suffered duty to EHTP unit, it was not liable to reverse credit. The assessee was not required to reverse the Cenvat credit which he had availed. By force, that entry was reversed. The assessee is entitled to refund which has been upheld by the Tribunal. Therefore, he submits no case for interference is made out.
4. In so far as the judgment of the Tribunal in
Lakshmi Automatic Loom Works Ltd., vs. Commissioner of Central Excise, Tricy ( 2008 (232) E.L.T. 428 (Tri-LB), which the Supreme Court wants this Court to take note of while deciding this case, is concerned, it has no application to the facts of this case. Therefore, he submits no case for interference is made out.
5. In the light of the aforesaid facts and rival contentions, the questions of law that arise for our consideration in this appeal are as under:
1) Whether the Tribunal is correct in holding that the Notification No.22/2003 would be applicable to the present case i.e., the imported capital goods on which Cenvat credit was availed and removed without payment of duty, under the cover of CT-3, is correct and legal?
2) Whether the Hon'ble Tribunal is correct in holding that the terms "Capital goods as such" occurring in Rule 3(4) of Cenvat Credit Rules 2002 refers to only "Unused cenvated capital goods?
3) Whether the assessee was entitled to the benefit of Cenvat credit availed in respect of inputs?
6. Notification No.22/2003-CE dated 31.03.2003 deals with exemption to goods brought into EOU/STP/EHTP. In exercise of powers conferred by sub-section (1) of Section 5A of the Central Excise Act 1944 (1 of 1944), read with sub-section (3) of section 3 of the Additional Duties of Excise Duties of Excise (Goods of Special Importance) Act, 1957 (58 of 1957) and sub-section (3) of section 3 of Additional Duties of Excise (Textile and Textile Articles) Act, 1978 (40 of 1978), the Central Government being satisfied, that it is necessary in the public interest so to do, hereby exempts,-
(a) all goods specified in Annexure-I to this notification, when brought in connection with,-
(i) manufacture and packaging of articles or for production or packaging or job work for export of goods or services, into export oriented undertakings (hereinafter referred to as the user industry) other than those units referred to in clauses (b) to (c);
(ii) manufacture or development of software, data entry and conversion, data processing, data analysis, control data management or call center services for export, into Software Technology Park (STP) Unit or a unit in Software Technology Park Complex under the hundred percent export oriented scheme (hereinafter referred to as the user industry); or
(iii) the manufacture or development of electronics hardware or electronic hardware and software in an integrated manner for export, into Electronics Hardware Technology Park (EHTP) unit or a unit in an Electronic Hardware Technology Park Complex (EHTP) under the hundred percent export oriented Scheme (hereinafter referred to as the user industry); or Subject to following conditions, namely:- (1) the user industry brings the excisable goods directly from the factory of manufacture or warehouse;
xxxxxx (5) the manufacturer of said goods follows the procedure contained in rules 11 and 20 of the Central Excise Rules, 2002;
7. The larger bench of the CESTAT in Lakshmi Automatic Loom Works Ltd., vs. Commissioner of Central Excise, Trichy, was dealing with Notification No.1/95-C.E. which is now substituted by Notification No.22/2003. At paras 6.4, 6.5, 6.7 and 6.8, it has been held as under:
"6.4. It can be seen that Rule 57F contains provisions relating to utilisation of the inputs and utilisation of credit taken. As far as the inputs are concerned, the general rule is that they should be utilised for the manufacture of final products. However, it contains certain exceptions. The inputs can be both imported as well as locally procured.
The inputs can, after intimating the jurisdictional excise authorities, be exported under bond; it can also be cleared for home consumption but only on payment of duty or on reversal of credit. There is no provision for supply of such inputs to 100% EOUs on deemed export basis. Thus, the Rule 57F(1) permits clearance for home consumption only on payment of duty and only for export, clearance can be effected on bond.
6.5. The provisos to Rule 57F(4) relied upon by the appellant permits utilisation of the credit attributable to inputs used in final products even when the final products are not exported but, say, supplied to 100% EOU. In this case, it is admitted that the inputs supplied as such to 100% EOU have not been used for manufacture of final products by the appellants.
6.7. A submission has been made to the effect that the supplies have been made on the basis of CT-3 certificate issued by jurisdictional Central Excise authorities in- charge of 100% EOUs and, therefore, should be deemed to have been utilised by the 100% EOUs for the manufacture of final products by the recipients and they were ultimately exported. The dispute here is not whether the 100% EOU can procure inputs duty-free or not or whether the recipient 100% EOU has utilised the input received from the appellant and whether the final products of the recipient 100% EOUs were exported or not. There can be no dispute that any EOU is entitled to procure inputs duty free. Such procurement is permissible only subject to fulfillment of the conditions of the exemption Notification. The dispute relates to the legality of clearance of the cenvated inputs (which can include imported inputs, as in the present case) by the appellants without reversing the credit and without payment of duty. Therefore, the said submission is not relevant.
6.8. We hold that the Notification 1/95 is not applicable to the present case and the clearances are governed only by the provisions of Rule 57F. We hold that the inputs cleared as such by the appellants to 100% EOUs can not be deemed to have been manufactured by the appellants; the supplies (which are deemed exports) can not be treated on par with export under bond for the purpose of Rule 57F. There is no warrant or justification to extend the instructions dated 31.12.1996 issued by the Ministry/Board to cover supplies to 100% EOU which are treated as deemed exports for certain purposes under EXIM Policy. The appellants are not entitled to remove the inputs without reversal of the credit or payment of equivalent amount of duty."
8. From the aforesaid, it is clear, the EOU is entitled to procure goods duty free. Such procurement is permissible only subject to fulfillment of condition of the exemption notification. Further, the decision of Larger Bench of the Tribunal in Lakshmi Automatic Loom Works Ltd., (supra) deals with only reversal of input as such and not removal of used capital goods. In the instant case, the assessee is having Domestic Tariff Area (DTA) Unit in the ground floor. It is having Electronic Hardware Technology Parks (EHTP) Unit in the first floor. The assessee while purchasing the capital goods as well as inputs to its DTA unit has paid duty. Therefore, it has availed Cenvat credit. In so far as the capital goods are concerned, it was used by the assessee in DTA unit. Thereafter, with the permission of the authorities in terms of the Rules 11 and 20 of the Central Excise Rules 2002 and Clause (6) of the Notification No.22/2003, the assessee removed the said goods from DTA unit to EHTP unit. As the said removal of used capital goods was done before the amendment to Rule3(4)(5) of the Cenvat Credit Rules 2004 during November 2007, no credit was reversible on removal of used capital goods and as such they were not liable to pay duty. In so far as the inputs are concerned, with the permission of the authorities as reflected in Form CT-3 they were also removed to EHTP unit. The assessee had purchased those inputs for its DTA unit. It was not liable to reverse credit as it had paid duty as it was purchased for DTA unit and thereafter with the permission of the authority removed to EOU unit. They were entitled to refund duty paid or reversal of the Cenvat credit. It is, during audit, the department took objections and made them to reverse those entries. They reversed the entries under protest and then they have preferred this application for refund. The argument is that the assessee is entitled to the said benefit only if the user industry brings excisable goods directly from the factory of manufacture or warehouse. In the instant case, when it removed goods to EHTP unit, it was not bringing excisable goods directly from the factory of manufacture or warehouse and therefore they are not entitled to the benefit of Notification No.22/2003. This is not a case where the assessee was purchasing those goods for its EHTP unit for the first time. It purchased the capital goods as well as inputs for its DTA unit. Therefore, duty was paid. Thereafter, with the permission of the authorities as reflected in CT- 3, the inputs were removed from DTA unit to the EHTP unit. Similarly, the capital goods purchased for DTA unit was used, it was not removed as such and when it was removed to EHTP unit again, they have no liability to pay the credit. This aspect has been completely missed by the authority. They proceeded on the assumption that user industry thereby mean EHTP unit was not bringing excisable goods directly from the factory of manufacture or warehouse and therefore they are not eligible for exemption. In the light of the aforesaid Notification which granted exemption, it is very clear that EHTP unit is entitled to exemption of payment of duty. Therefore, the assessee rightly availed the Cenvat credit and then reversed it when those goods were moved to EHTP unit and claimed refund. Therefore, the said question of law is answered in favour of the assessee and against the Revenue.
9. The next question is whether the assessee was not liable to pay any duty when capital goods after it is being used was removed to the EOU unit.
10. Rule 3 Sub-rule 4 of Cenvat Credit Rules, 2002 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."
11. The liability to pay duty on capital goods arises after the capital goods have been removed as such. The word "as such" is being the subject matter of interpretation by the various Courts. Punjab and Haryana High Court in the case of Commissioner of Central Excise, Ludhiana vs. Khalsa Cotspin (P) Ltd., reported in 2011 (270) E.L.T. 349 (P & H) has held as under:
"The assessee having validly availed cenvat credit, same is required to be reversed only if goods were cleared in the same position without payment of excise duty. In the present case, it has been held by the Tribunal that goods were not cleared in the same position but after having been used and in such situation Rule 3(5) of the Rules will not apply."
12. Bombay High Court in the case of Cummins India Ltd., vs. Commissioner of Central Excise, Pune-III reported in 2007 (219) E.L.T. 911 (Tri- Mumbai) confirmed the order of the Appellate Tribunal which has held as under:
"The plain and simple meaning of expression "as such" would be that capital goods are removed without putting them to use. Admittedly, in the present case capital goods have been used for a period of more than 7 to 8 years. As such, interpretation given by the authorities below would lead to absurd results if an assessee is required to reverse the credit originally availed by them at the time of receipt of the capital goods, when the said capital goods are subsequently removed as old, damaged and unserviceable capital goods. This would defeat the very purpose of grant of facility of Modvat credit in respect of capital goods and would not be in accordance with the legislative intent."
13. The Delhi High Court in the matter of Harsh International (Khaini) Pvt. Ltd., vs. Commissioner of Central Excise reported in 2012 (281) E.L.T. 714 (Del.), after referring to the various judgments held as under:
"In the present case the appellant purchased the capital goods in the period between 2003 and 2005 and used them in its factory till they were sold to M/s Harsh International (Khaini) Pvt. Ltd., in June and July, 2007. Thus the capital goods were used for a period of 2 to 4 years. They cannot, therefore, be stated to be sold "as such" capital goods. They were sold as used capital goods."
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.
15. In so far as the inputs are concerned, it is not in dispute that the assessee while purchasing the said goods for its DTA unit has paid duty. It is only when those inputs as such were removed to the EHTP unit, the Cenvat credit availed was reversed. It is because, if the assessee had purchased those inputs for its EHTP unit by virtue of aforesaid Notification, there was no duty payable, as the said inputs were removed with the previous permission of the department as reflected in CT-3. There was no liability to pay the duty and already Cenvat credit had been taken, it was reversed under protest and therefore, they were entitled to the refund of the said amount. That question is also answered in favour of the assessee and against the Revenue.
For the foregoing reasons, we do not see any merit in this appeal. Accordingly, the appeal is dismissed.
Sd/-
JUDGE Sd/-
JUDGE PMR/mn
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