Balance Cenvat credit on capital goods requires continued possession; wrongful availment sustained, but penalty reduced.

Balance Cenvat credit on capital goods in the succeeding year is available only if the statutory condition of continued possession and use is satisfied; where the fixtures had been removed and were no longer available, the credit was disallowed. The demand was sustained because the assessee's returns and records did not amount to a separate disclosure capable of negating wrongful availment, while the penalty was held excessive and reduced to a token amount.

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Issues: (i) Whether the assessee was entitled to avail the balance 50% Cenvat credit on capital goods in the subsequent financial year when the goods were no longer in its possession or use. (ii) Whether the demand was barred by limitation and whether the penalty imposed required interference.

Issue (i): Whether the assessee was entitled to avail the balance 50% Cenvat credit on capital goods in the subsequent financial year when the goods were no longer in its possession or use.

Analysis: Rule 4(2)(b) of the Cenvat Credit Rules permits only 50% credit in the year of receipt and the remaining 50% in the succeeding year, subject to the capital goods remaining in the possession of the manufacturer. The fixtures were treated as capital goods and the assessee failed to establish that they fell within any exception. Since the fixtures had been removed and were not available in the subsequent year, the condition for availing the balance credit was not satisfied.

Conclusion: The denial of the balance 50% Cenvat credit was upheld and this issue was decided against the assessee.

Issue (ii): Whether the demand was barred by limitation and whether the penalty imposed required interference.

Analysis: Although the clearance and credit entries were reflected in returns and accounts, the assessee did not seek advice or make any separate disclosure that would negate the inference of wrongful availment. The claim of credit was held to be inadmissible and the demand was therefore sustained. On penalty, the facts did not justify a penalty at the full quantified level, and a token penalty was considered appropriate.

Conclusion: The demand was sustained, but the penalty was reduced to Rs. 5,000.

Final Conclusion: The appeal succeeded only to the limited extent of reduction of penalty, while the denial of credit and confirmation of duty were maintained.

Ratio Decidendi: Balance credit on capital goods in a subsequent year is admissible only if the statutory condition of continued possession and use is satisfied, and inadmissible credit cannot be sustained where the assessee makes no separate disclosure sufficient to displace the inference of wrongful availment.

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