2007 (8) TMI 25 - AT - Central Excise

Cenvat credit for capital goods depends on final product's duty status when goods received; Rule 4(2) and 6(4) CCR

SPENTA INTERNATIONAL LTD. Versus COMMISSIONER OF CENTRAL EXCISE, THANE

CESTAT, MUMBAI - AT held that Cenvat credit eligibility for capital goods is determined by the dutiability of the final product on the date the capital ... Cenvat/Modvat - manufacturing of socks - capital goods - Whether Cenvat credit eligibility is to be determined with reference to the durability of the final product on the date of the receipt of the goods or the date of utilization eligibility of 50% credit - HELD THAT:- As per Rule 4(2) of the Cenvat Credit Rules, 2002, Cenvat credit upto 50% was available the moment capital goods were received in the factory of the manufacturer and the remaining 50% in any financial year subsequent to the financial year in which the capital goods were received. The ACE Timez decision [2004 (5) TMI 123 - CESTAT, BANGALORE], which takes a contrary view from those set out above, considers Rules 4(2)(a) & (b) of the Cenvat Credit Rules, 2002 and holds that these rules do not provide for denial of credit on the ground that it is not taken in the same financial year in which capital goods were received, and only restricts credit to 50% of the duty paid, in the financial year of receipt of capital goods, and do not provide for lapsing of credit if the balance 50% is not taken in the same financial year in which the capital goods were received. The above judgment does not consider Rule 6(4) of the Cenvat Credit Rules, which clearly stipulates that no credit shall be allowed on capital goods used exclusively in the manufacture of exempted goods. In other words, the ACE Timez decision discusses the manner in which credit to be availed as per Rule 4(2)(a) & (b) and does not discuss eligibility in terms of Rule 6(4). Therefore, Cenvat credit eligibility is to be determined with reference to the dutiability of the final product on the date of receipt of capital goods. Issues:Determining Cenvat credit eligibility with reference to the durability of the final product on the date of receipt of goods or the date of utilization eligibility of 50% credit.Analysis:1. The case involved the manufacturing of socks that were exempt from duty before 2003 and became dutiable from 1-4-2003. The denial of Cenvat credit on capital goods was based on the argument that the final products were exempt at the time of receiving the capital goods.2. Rule 4(2) of the Cenvat Credit Rules, 2002 allowed 50% credit upon the receipt of capital goods and the remaining 50% in subsequent financial years. Rule 6(4) states that no credit is allowed on capital goods used exclusively in the manufacture of exempted goods.3. The Tribunal previously recognized in Grasim Industries Ltd. v. CCE that the date of receipt of goods is crucial for determining credit eligibility. Various decisions like Binani Cement Ltd. and Hind Spinners Industries Growth Centre emphasized that credit accrues on the date of receipt, not installation.4. The Tribunal in the present case upheld that the quantum of credit permissible is based on the date of receipt of capital goods. The judgment highlighted that the appellants were eligible for the benefit permissible on the receipt date, which was 75% initially and later raised to 100% by a non-retrospective amendment.5. The Supreme Court dismissed the civil appeal against the Tribunal's decision. The case law of Binani Cement Ltd. and other precedents reiterated that the availability of credit is determined at the time of receiving capital goods, and subsequent changes do not impact eligibility.6. Contrary views in the ACE Timez decision were discussed, emphasizing that credit does not lapse if not taken in the same financial year. However, Rule 6(4) stipulates no credit on capital goods exclusively used for exempted goods, aligning with the Tribunal's stance.7. The Tribunal concluded that Cenvat credit eligibility is to be determined concerning the dutiability of the final product on the date of capital goods receipt. The papers were referred back for further orders after the judgment was pronounced on 1-8-2007.