Cenvat credit on capital goods is barred when used exclusively for exempt production, despite general credit-taking rules.

Cenvat credit on capital goods was held inadmissible where the goods were received, installed and used exclusively during a period when the final product was exempt or nil-rated. Rule 6(4) of the Cenvat Credit Rules, 2002 bars credit on capital goods used only in exempted manufacture, except for the limited case of exemption tied to annual value or quantity-based clearances; that exception did not apply here. Rule 4 permitting credit did not override this specific restriction. The precedents relied on by the assessee were distinguished because they involved mixed use or no exclusive use in exempt production. The disallowance was therefore upheld.

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Issues: Whether Cenvat credit on capital goods was admissible when the goods were received and installed during the period when the final product was exempt or attracted nil duty and were used exclusively in the manufacture of exempted final products.

Analysis: Rule 6(4) of the Cenvat Credit Rules, 2002 bars credit on capital goods used exclusively in the manufacture of exempted goods, subject to the limited exception relating to exemption based on the value or quantity of clearances in a financial year. Rule 4 permits taking and utilisation of credit in the manner prescribed, but that facility does not override the specific prohibition under Rule 6(4). On the facts, the capital goods were received, installed, and used when the final product was nil-rated and there was no established use of those capital goods for dutiable production during the relevant period. The precedents cited by the assessee were distinguished because those cases involved mixed use or did not involve exclusive use in exempted production.

Conclusion: Credit on the capital goods was not admissible, and the disallowance was upheld against the assessee.

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