Cenvat credit on capital goods turned on competing interpretations of eligibility timing and penalty consequences.

Cenvat credit on capital goods was examined against competing interpretations of the Cenvat Credit Rules, 2002: one view fixed eligibility by the dutiability of the final product when the capital goods were received, while another permitted credit when the goods were later used for dutiable manufacture. The order noted that the entire credit had been reversed before adjudication and that the penalty question depended on the same interpretational dispute. As the two lines of authority were irreconcilable on the governing point, the question of law was referred to a Larger Bench, and the penalty issue was directed to follow that reference.

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Issues: Whether Cenvat credit on capital goods is to be determined with reference to the dutiability of the final product on the date of receipt of the capital goods or on the date of their utilization and availment of 50% credit; and whether penalty survives where the credit dispute turns on competing interpretations of the Cenvat Credit Rules, 2002.

Analysis: The appeal raised a conflict between two lines of authority on capital goods credit, one treating eligibility as crystallised when the goods are received and used for exempted manufacture, and the other allowing credit when the goods are later put to dutiable manufacture. The order noted that the appellant had reversed the entire credit before adjudication and that the penalty issue depended on the same interpretational controversy. Because the rival decisions appeared irreconcilable on the governing point, the matter was considered fit for reference to a Larger Bench for authoritative determination.

Outcome: The question of law was referred to a Larger Bench for decision, and the penalty issue was left to follow the outcome of that reference.

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