CENVAT credit — Respondents purchased an induction furnace and took CENVAT credit for the same after nine years — They sold the machine and paid duty on transaction value — Department was of the view that the duty was payable of the amount equal to the CENVAT credit availed at the time of purchase — Held, respondents had paid the correct amount of duty — Machine cannot be treated as cleared as such when it was sold after putting into use for nine years.

CENvAT credit — Respondents purchased an induction furnace and took CENvAT credit for the same after nine years — They sold the machine and paid duty on transaction value — Department was of the view that the duty was payable of the amount equal to the CENvAT credit availed at the time of purchase — Held, respondents had paid the correct amount of duty — Machine cannot be treated as cleared as such when it was sold after putting into use for nine years.

The respondent was engaged in the manufacture of non-alloy steel ingots who purchased an induction furnace in the year 1994 and took credit CENVAT for the same. It used the said machinery till 2003 and then sold it after payment of duty which was equal to 16% on the sale price. The respondent paid duty on the transaction value but the Revenue was of the view that respondent should have paid duty equal to CENVAT credit availed at the time of purchase of the machinery and also imposed penalty on them.

Held:

It was held that the respondent had paid the correct amount of duty because capital goods are used over a period of time and that they lose their identity as capital goods only after use over a period of time. The same became inserviceable and fit to be scrapped. The object of CENVAT credit on capital goods is to avoid the cascading effect of duty. For this, it is provided that if the machines were cleared ‘as such’ the assessee shall be liable to pay duty equal to the amount of CENVAT credit availed. The machine cleared after putting into use for nine years cannot be treated as cleared ‘as such’.