Raising invoices for the cost of moulds without the physical removal of the capital goods from the factory premises does not constitute 'removal' under Rule 3(5) of the CENVAT Credit Rules, 2004; therefore, no reversal of CENVAT credit is required.

Per Mr. VASA SESHAGIRI RAO

The present appeal is directed against the Order-in-Appeal No. 166/2017 dated 12.06.2017 passed by the Commissioner (Appeals), Madurai, whereby the Order-in Original confirming demand of reversal of CENVAT credit along with interest and penalties was upheld. The appellant, M/s. TVS Novotema Elastomeric Engineered Products Pvt. Ltd., Madurai, is engaged in the manufacture of rubber products such as O-rings, gaskets and rubber sealing components classifiable under Chapter 40 of the Central Excise Tariff Act, 1985. These products are manufactured based on specifications provided by their customers and require customer-specific moulds. The moulds are imported from M/s. Novotema, Italy on payment of applicable customs duties and the appellant availed CENVAT credit of the duties paid thereon treating them as capital goods used in the manufacture of final products.

2. The facts briefly stated are that during audit conducted by the department for the period April 2009 to June 2013, it was noticed that the appellant had raised invoices for sale of moulds to certain customers under Rule 11 of the Central Excise Rules, 2002 and had collected VAT on such invoices. However, the department observed that in several instances the appellant had not reversed the CENVAT credit availed on such moulds at the time of issuing the invoices. According to the department, raising of invoices for sale of moulds amounted to removal of capital goods and therefore the appellant was required to pay an amount equal to the CENVAT credit availed under Rule 3(5) of the CENVAT Credit Rules, 2004. On this basis, a Show Cause Notice dated 06.01.2015 was issued proposing recovery of wrongly availed CENVAT credit amounting to Rs. 21,95,821/- along with interest and penalties under the provisions of the Central Excise Act, 1944 and the CENVAT Credit Rules, 2004. The adjudicating authority confirmed the demand along with interest and penalties and the Commissioner (Appeals) upheld the said order, against which the present appeal has been filed before this Tribunal.

3. The Ld. Advocate Ms. S. Uma Maheswari appeared on behalf of the Appellant and advanced detailed submissions in support of the Appeal and the Ld. Authorized Representative Mr. M. Selvakumar appeared for the Revenue and defended the impugned Order.

4. The arguments of the Ld. Advocate Ms. S. Uma Maheswari are summarized as below: -

4.1 The entire demand is unsustainable both on facts and in law as the moulds were never physically removed from the factory premises but continued to remain in the factory and were used for manufacturing customer-specific products. Since the moulds remained within the factory and were used in the manufacture of final products, the condition of “removal” contemplated under Rule 3(5) of the CENVAT Credit Rules, 2004 was not satisfied. It was further submitted that the moulds are customized tools designed for specific customers and their cost is amortized over the value of the finished products manufactured using those moulds as reflected in the pricing agreements with customers. The learned counsel contended that raising invoices for recovery of mould cost is merely a co