Transitional Cenvat credit requires strict compliance where goods are still in transit and not received in the factory

Transitional Cenvat credit under Rule 9A was confined to inputs or goods lying in stock, and that requirement had to be read strictly with the Rules' scheme requiring receipt in the factory. Goods still in transit or lying with a transporter before delivery to the factory did not satisfy the statutory condition, and a circular on disclosure of stock outside the registered premises did not extend credit to such goods. Where credit was claimed despite the admitted absence of receipt in the factory, strict compliance was not met and penalty was upheld.

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Issues: (i) Whether goods lying with the transporter and not yet received in the factory could be treated as goods lying in stock for the purpose of Rule 9A of the Cenvat Credit Rules, 2002; (ii) Whether penalty was warranted where credit was claimed on such goods.

Issue (i): Whether goods lying with the transporter and not yet received in the factory could be treated as goods lying in stock for the purpose of Rule 9A of the Cenvat Credit Rules, 2002.

Analysis: Rule 9A permitted transitional credit only in respect of inputs or goods lying in stock, and the scheme had to be read with Rule 3 of the Cenvat Credit Rules, 2002 and the definition of inputs and capital goods, which contemplated receipt within the factory premises. The circular relied upon only required disclosure of the place where stock was kept if it was stored outside the registered premises; it did not extend to goods still in transit or lying with a transporter before receipt in the factory. Since the appellants themselves disclosed that the goods had not been received in the factory and no exact place of storage was established, the statutory condition was not satisfied.

Conclusion: No. Goods lying with the transporter and not yet received in the factory could not be treated as goods lying in stock under Rule 9A.

Issue (ii): Whether penalty was warranted where credit was claimed on such goods.

Analysis: The conditions for availing the benefit were clear and had to be strictly complied with. The appellants claimed the benefit despite admitting that the goods were not yet received in the factory and were in transit, and the contention of misunderstanding of law was not accepted. On those facts, the attempt to avail credit was treated as unlawful.

Conclusion: Yes. The penalty was justified.

Final Conclusion: The appeals failed because the transitional credit condition was not met and the penalty could not be interfered with.

Ratio Decidendi: Transitional credit under a beneficial scheme can be availed only on strict compliance with the statutory conditions, and goods not yet received in the factory and merely lying with a transporter do not constitute stock for that purpose.

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