Cenvat credit on capital goods cannot be denied for a temporary exempted-use period when dutiable production also occurred.

Cenvat credit on capital goods could not be denied merely because the goods were used exclusively for exempted manufacture during one part of the relevant period, where they were also used for dutiable production in other periods. The Tribunal applied the principle that the manufacturing period cannot be split into isolated segments to disallow credit and held that the relevant Cenvat rule does not require dutiable and exempted goods to be produced on a day-to-day basis throughout the year. Credit on the capital goods was therefore admissible and the denial was unjustified.

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Issues: Whether Cenvat credit on capital goods could be denied on the ground that the goods were used exclusively for manufacture of exempted goods during part of the relevant period, even though they were also used for manufacture of dutiable goods in other periods.

Analysis: The capital goods were used for manufacture of excisable goods on payment of duty before the assessee opted for the exemption scheme, then used during the exemption period, and later again used for manufacture of dutiable goods. The Tribunal applied the settled principle that such a period cannot be split into isolated parts for denying credit, and relied on the view that Rule 57AD(2) of the erstwhile Central Excise Rules, corresponding to Rule 6 of the Cenvat Credit Rules, does not require the manufacturer to produce dutiable and exempted goods on a day-to-day basis throughout the year. Where the manufacturer has both dutiable and exempted production during different periods, credit is not to be disallowed merely because there was a spell of exempted manufacture.

Conclusion: Cenvat credit on the capital goods was held admissible and the denial of credit was unjustified.

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