Cenvat credit on capital goods survives surrender of registration where manufacture continues and re-registration follows under SSI exemption.

Cenvat credit on capital goods could not be treated as lapsed merely because the manufacturer surrendered registration and later re-registered while continuing production under the SSI exemption. Rule 57AG(2) applied only to inputs and did not create a lapse of credit on capital goods, while Rule 57AC allowed the credit to be availed in stages so long as the capital goods remained in the manufacturer's possession and use. The statutory scheme, including Rule 57AD(3), did not support a general forfeiture of balance credit on surrender of registration. The balance Cenvat credit on capital goods remained available after re-registration, and denial of the credit was unsustainable.

---

---

Issues: Whether Cenvat credit earned on capital goods could be denied or treated as lapsed merely because the assessee had surrendered its registration and later re-registered while continuing manufacture under the SSI exemption.

Analysis: Rule 57AG(2) of the Central Excise Rules, 2000 was confined to inputs and provided for lapse of credit only in that context. It did not govern credit earned on capital goods. Rule 57AC permitted fifty per cent of the duty-paid credit on capital goods to be taken in the year of receipt and the balance in subsequent years, subject to the capital goods remaining in the possession and use of the manufacturer. Rule 57AD(3) also showed that the statutory scheme did not create a general lapse of capital goods credit on the basis suggested by the Department. Mere surrender of registration, when done because the assessee became eligible for SSI exemption and manufacturing continued, did not by itself extinguish the balance credit.

Conclusion: The assessee was entitled to avail the balance Cenvat credit on capital goods after re-registration, and the denial of credit was unsustainable.

---