CENVAT credit on capital goods cannot be denied solely because receipt preceded dutiable clearances in the same financial year.

CENVAT credit on capital goods received during a financial year cannot be denied merely because the goods were exempt on the date of receipt if the year also included dutiable clearances and the final product became dutiable before year-end. Rule 4(2)(a) governs the timing and manner of availment, while Rule 6(4) bars credit only where capital goods are used exclusively in exempted manufacture, subject to the stated exception for value-based exemption notifications. The Court held that the date of receipt is not the sole determinant and that credit cannot be refused on the footing that by-products were of negligible quantity when those products were themselves dutiable.

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Issues: Whether CENVAT credit on capital goods received during a financial year can be denied merely because the goods were exempt on the date of receipt, when the same financial year also contained dutiable clearances and the final product became dutiable before the year ended.

Analysis: Rule 4(2)(a) of the CENVAT Credit Rules, 2002 permits credit on capital goods received in a factory at any point of time in a given financial year and regulates only the manner and timing of availment. Rule 6(4) bars credit only where the capital goods are used exclusively in the manufacture of exempted goods, but carves out an exception for exempt goods covered by value-based exemption notifications. The Rules define capital goods and final products, and do not distinguish between main product and by-product. The Court held that the expressions used in the Rules cannot be read to make the date of receipt of capital goods the sole determinant, nor can credit be denied on the ground that by-products were of negligible quantity when those products were themselves dutiable.

Conclusion: CENVAT credit could not be denied on the facts of the case, and the question was answered in favour of the assessee.

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