2014 (7) TMI 189 - AT - Central Excise

Appellate Tribunal grants appeal on Cenvat credit for capital goods, clarifies Rule 4(2)

The Appellate Tribunal allowed the appeal, setting aside the lower authority's decision to impose a penalty and interest on the appellant for availing ... Availment of balance 50% of Cenvat credit - timing of availing the balance credit on capital goods - Interpretation of provisions of Rule 4(2) of the Cenvat Credit Rules - Held that:- Revenue is not disputing the availability of the balance fifty per cent Cenvat credit to the appellant after the installation of the capital goods. It is only the question of timing of availment of credit. Admittedly the capital goods were received by the appellant and were under their possession. The said Rule 4(2)(b) uses the expression “possession and use of the manufacture of final products”. Revenue views are that the same should be put to actual use before the availing the credit. We find that the said disputed legal issue was the subject matter of Hon’ble Bombay High Court’s decision in the case of Commissioner of Central Excise, Raigad v. Ispat Industries Ltd. - [2013 (3) TMI 362 - BOMBAY HIGH COURT] vide which the Revenue’s appeal was rejected. In view of the above finding of the Hon’ble High Court the expressions “possession” and “use” had to be read together and once the goods are received, their actual installation and use may not be insisted upon. As the capital goods were admittedly received by the appellant and were ultimately installed and used in the manufacture of the final product, we are of the view that the appellant was entitled to avail the 50% of credit in the subsequent financial year 2001-2002 - Consequently, no interest is liable to be confirmed against them and no penalty is liable to be imposed - Decided in favour of assessee. Issues: Interpretation of Rule 4(2) of Cenvat Credit Rules regarding availment of balance credit on capital goods received in a factory in a subsequent financial year.In this case, the appellant received capital goods in their factory in 2001 and availed 50% credit on 31-3-2001, intending to avail the balance credit in the next financial year. The dispute arose over the availment of the remaining 50% credit in the financial year 2001-2002. The Revenue contended that since the goods were not actually installed and used in the manufacture of final products, the credit should not have been availed. The appellant reversed the credit on 26-2-2003 but re-availed it on 19-3-2004 after the goods were installed in the factory on 28-3-2003. The Lower Authority imposed a penalty and interest for the credit taken on 4-12-2001 and reversed on 26-2-2003.The key issue revolved around the interpretation of Rule 4(2) of the Cenvat Credit Rules. The dispute was not about the availability of the balance credit after installation but the timing of its availment. The rule required possession and use of the goods in the manufacture of final products. The Revenue argued for actual use before credit availment, citing the Hon'ble Bombay High Court's decision in a similar case. The High Court's ruling emphasized that possession and use should be read together, and actual installation and use need not be insisted upon once goods are received. As the goods were received and eventually used in manufacturing, the appellant was entitled to avail the credit in the subsequent financial year. Consequently, no interest or penalty should be imposed.The Appellate Tribunal set aside the impugned order, allowing the appeal with consequential relief. The judgment clarified the interpretation of Rule 4(2) regarding the availment of Cenvat credit on capital goods received in a factory in a subsequent financial year, emphasizing the importance of possession and eventual use in the manufacturing process.