Cenvat credit on capital goods: later use for exempted goods does not defeat balance credit when received during dutiable production.

Rule 4(2)(b) of the Cenvat Credit Rules, 2004 allows the balance 50% of capital goods credit to be taken in a later financial year if the capital goods remain in the manufacturer's possession. Entitlement is determined by the date of receipt of the capital goods in the factory, not by their later use. As the packing machine was received when the final product was dutiable and initial credit had already been allowed, the subsequent use of the machine for exempted biscuits did not defeat the right to claim the remaining credit. The denial of balance Cenvat credit was therefore unsustainable.

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Issues: Whether the assessee was entitled to avail the remaining 50% of Cenvat credit on capital goods in the subsequent financial year when the capital goods were received at a time when the final product was dutiable but the machine was later used for exempted biscuits.

Analysis: Rule 4(2)(b) of the Cenvat Credit Rules, 2004 permits balance credit to be taken in any financial year subsequent to the year of receipt, provided the capital goods remain in the possession of the manufacturer. The relevant date for determining entitlement is the date on which the capital goods are received in the factory. Since the packing machine was received when the goods manufactured were liable to central excise duty and the assessee had already been allowed the initial 50% credit, there was no basis to deny the balance credit in the next financial year merely because the machine was subsequently used in relation to exempted goods. The rule does not impose any further condition that the remaining credit becomes unavailable if the capital goods are later used for exempted production.

Conclusion: The assessee was entitled to avail the remaining 50% of Cenvat credit, and the denial of such credit was unsustainable.

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