CENVAT credit on capital goods used exclusively for exempted goods is barred when eligibility is judged at the relevant time.

Rule 6(4) of the Cenvat Credit Rules, 2004 bars CENVAT credit on capital goods used exclusively in the manufacture of exempted goods or exempted services. Eligibility is determined by the use of the capital goods at the relevant time, not by their later potential or subsequent deployment for dutiable production. Where credit was reversed after audit and refund was claimed thereafter, those later as did not cure the original ineligibility. The credit was therefore not admissible and the refund claim failed, leaving the matter in favour of Revenue.

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Issues: Whether CENVAT credit on capital goods used exclusively in the manufacture of exempted goods was admissible, and whether later reversal of credit and subsequent use for dutiable goods could support a refund claim.

Analysis: Rule 6(4) of the Cenvat Credit Rules, 2004 bars credit on capital goods used exclusively for exempted goods or exempted services. The entitlement to credit depends on the use of the capital goods at the relevant time, and not on their mere capability or on later changes in use. The record showed that the credit was reversed after audit and the refund was sought thereafter. Such later developments could not alter the original ineligibility to credit, particularly when the capital goods were found to be used exclusively for exempted production at the material time.

Conclusion: The credit was not admissible and the refund claim was unsustainable; the decision was in favour of Revenue.

Final Conclusion: The appeal failed because capital goods used exclusively for exempted goods do not qualify for CENVAT credit, and subsequent events do not cure the initial bar.

Ratio Decidendi: Eligibility for CENVAT credit on capital goods is determined by their use at the relevant time, and credit is not available where the goods are used exclusively in exempted manufacture.

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