Balance Cenvat credit on capital goods may be taken later if goods remain in possession and use in that year.

Rule 4(2)(b) of the Cenvat Credit Rules, 2002 permits the balance 50% Cenvat credit on capital goods to be taken in a later financial year, provided the goods are in the manufacturer's possession and use in that year. The rule does not require possession at the exact moment the credit entry is made. On the stated facts, the assessee had received the capital goods, taken only the initial credit, and retained possession and use in the relevant subsequent year, so the demand and credit denial were treated as unsustainable at the prima facie stage. Full waiver of duty demand and penalty was granted pending appeal.

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Issues: Whether the assessee was entitled to take the balance 50% Cenvat credit in a subsequent financial year when the capital goods had already been cleared, and whether pre-deposit of duty and penalty was liable to be waived.

Analysis: Rule 4(2)(b) of the Cenvat Credit Rules, 2002 permits the balance Cenvat credit to be taken in any financial year subsequent to the year in which the capital goods were received, provided the capital goods are in the possession and use of the manufacturer in that subsequent year. The rule does not require that the capital goods must be in possession at the precise moment when the credit entry is made. On the facts, the assessee had received the goods, availed only the initial 50% credit, and in the relevant subsequent year the capital goods were in its possession and use. The demand and denial of credit were therefore treated as unsustainable at the prima facie stage.

Conclusion: The assessee was held prima facie entitled to the balance credit, and full waiver of the duty demand and penalty was granted pending disposal of the appeal.

Ratio Decidendi: Under Rule 4(2)(b) of the Cenvat Credit Rules, 2002, the balance credit on capital goods may be availed in a later financial year if the capital goods are in possession and use in that year, and the rule does not insist on possession at the exact time the credit is taken.

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