Cenvat credit on capital goods and penalty on sample clearances were upheld where possession and transparent clearance conditions were satisfied.

Under the applicable Cenvat credit rules, possession of capital goods was sufficient to avail credit, and prior use was not required; the credit was therefore correctly allowed. Penalty was also not warranted on samples cleared under delivery challan for customer approval, since the clearances were made in small quantities, had no commercial value, and duty with interest was paid before the show cause notice; the absence of clandestine removal justified non-imposition of penalty. The impugned order was upheld and the Revenue's challenge failed.

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Issues: (i) Whether Cenvat credit on capital goods was admissible when the goods were in possession of the assessee but had not yet been put to use; and (ii) whether penalty was leviable on clearance of samples made under delivery challan without payment of duty at the time of clearance.

Issue (i): Whether Cenvat credit on capital goods was admissible when the goods were in possession of the assessee but had not yet been put to use.

Analysis: The governing rule was understood to require possession of the capital goods and not actual use as a precondition for availing credit. Since the capital goods were already in the respondent's possession on the date credit was taken, the credit could not be denied merely because the goods had not been put into use.

Conclusion: The credit on capital goods was correctly allowed and the Revenue's challenge failed on this issue.

Issue (ii): Whether penalty was leviable on clearance of samples made under delivery challan without payment of duty at the time of clearance.

Analysis: The samples were cleared in small quantities under delivery challan for customer approval, had no commercial value, and duty together with interest had been paid before issuance of the show cause notice. In those circumstances, the clearances were not treated as clandestine removal and the circumstances did not justify imposition of penalty.

Conclusion: Penalty was rightly not imposed on the respondent.

Final Conclusion: The impugned order was upheld in full, and the Revenue's appeal did not succeed.

Ratio Decidendi: Under the applicable Cenvat credit rules, possession of capital goods was sufficient for availing credit without proof of prior use, and penalty is not warranted where sample clearances are made transparently under delivery challan and duty with interest is paid before notice.

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