Cenvat credit on capital goods depends on continued possession and use, unless a later amendment expands entitlement.

Balance Cenvat credit on capital goods is available only if the goods remain in the possession and use of the same manufacturer in the relevant factory. Where capital goods are transferred out before the deferred credit is claimed, the statutory condition is not met and the remaining credit is not admissible. For goods removed in a later financial year, proportionate credit may be allowable where the condition was satisfied for part of the period before removal. An amended credit rule effective from 1-3-2002 also enlarged entitlement by permitting full credit for capital goods cleared as such in the same financial year, so later removals fell within the beneficial proviso.

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Issues: (i) Whether the balance Cenvat credit on capital goods could be taken when the goods had been removed from the receiving factory before the credit was claimed, and (ii) whether credit was admissible in respect of capital goods cleared in the subsequent financial year after the amendment to the credit rule.

Issue (i): Whether the balance Cenvat credit on capital goods could be taken when the goods had been removed from the receiving factory before the credit was claimed.

Analysis: The relevant provisions allowed only fifty per cent credit in the year of receipt and the balance in a subsequent year if the capital goods were still in the possession and use of the manufacturer. The requirement was construed to mean continued possession and use in the same factory where the goods were received. A transfer to another unit did not satisfy the statutory condition, and the plea of revenue-neutrality did not override the express limitation built into the scheme.

Conclusion: The balance credit was not admissible for capital goods removed in the same financial year in which they were received, and the assessee's claim failed on this issue.

Issue (ii): Whether credit was admissible in respect of capital goods cleared in the subsequent financial year after the amendment to the credit rule.

Analysis: For the goods removed in the following financial year, the statutory condition of continued possession and use stood satisfied for at least a part of the period before removal, so proportionate credit was allowable. For the later appeal, the amended rule, which came into force on 1-3-2002, expressly permitted full credit where capital goods were cleared as such in the same financial year. Goods removed after the amendment thus fell within the beneficial proviso.

Conclusion: Credit was admissible for the relevant quantities removed in April 2001 and March 2002, and the demand required fresh quantification accordingly.

Final Conclusion: The impugned order was sustained in principle, but credit was allowed for the limited quantities removed in the subsequent financial year and after the amendment, with the matter remitted for recomputation of the duty demand.

Ratio Decidendi: The balance Cenvat credit on capital goods is available only when the goods continue to remain in the possession and use of the same manufacturer in the relevant factory, unless a later amendment expressly enlarges the entitlement.

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