2014 (9) TMI 366 - HC - Central Excise

High Court upholds Tribunal's decision favoring oil corporation in Cenvat credit dispute. Possession and use key.

The High Court upheld the Tribunal's decision, ruling in favor of the respondent, an oil corporation, in a dispute over availing Cenvat credit on capital ... CENVAT Credit - Whether the Tribunal is justified in holding that the words “in use of” in Rule 4(2) of the Cenvat Credit Rules, 2002 have to be treated as meaning “is available for use” of the manufacturer and whether the Tribunal ought to have held that for the purpose of taking balance amount of Cenvat credit under Rule 4(2)(b) of the Cenvat Credit Rules, 2002 in the financial year subsequent to the year in which capital goods are received, such goods should not only be in possession but should also be in actual use - Held that:- capital goods were received during the financial year 2002-2003. 50% credit on duty paid on such goods was, therefore, rightly taken by the manufacturer in such year. The manufacturer also thereafter took credit for the remaining 50% on 1-4-2004. The Revenue contends that since the said goods were not put in use for manufacture of final product till 13-8-2004, such credit was taken prematurely. Admittedly the capital goods so received by the respondent continued to be in possession and use on 1-4-2004 and thereafter also. In fact, such capital goods were utilized for the purpose of setting up of the laboratory. It can, therefore, not be stated that the goods were not in possession and use of the manufacturer. The manufacturer puts such goods to use for setting up of the laboratory which ultimately would be used for the purpose of manufacture of the final product. Admittedly, the task of setting up the laboratory was completed on 13-8-2004. Under the circumstances, to our mind, the Tribunal cannot be stated to have misconstrued the Rules so as to allow the Cenvat credit to the respondent on 1-4-2004 itself. - Decided against Revenue. Issues:Interpretation of Rule 4(2) of the Cenvat Credit Rules, 2002 regarding availing Cenvat credit on capital goods; Whether possession and use of capital goods are necessary for availing remaining 50% credit in a subsequent financial year.Analysis:The case involved a dispute over the interpretation of Rule 4(2) of the Cenvat Credit Rules, 2002, specifically regarding the conditions for availing Cenvat credit on capital goods. The respondent, an oil corporation, had purchased machinery for setting up a laboratory and availed 50% of the Cenvat credit in the year of purchase and the remaining 50% in the subsequent year. However, the Revenue contended that the machinery was not put to use for manufacturing final products before a certain date, questioning the validity of availing the credit. A show cause notice was issued, leading to a legal battle.The respondent argued that the rule allowed for availing 50% credit in the year of purchase and the remaining 50% in the subsequent year, subject to possession and use of the capital goods. They emphasized that possession and use were key factors, and the machinery was indeed in possession and used for setting up the laboratory, which would eventually be used for manufacturing final products. The respondent highlighted the removal of the word 'use' from the rule in subsequent amendments to avoid misinterpretations.The adjudicating officer ruled against the respondent, directing reversal of the credit taken prematurely and imposing penalties. However, the Tribunal overturned this decision, relying on a previous judgment and interpreting 'use' as being available for use by the manufacturer, rather than actual utilization for manufacturing final products. The Tribunal's decision was challenged before the High Court.The High Court analyzed the provisions of Rule 4(2) in detail, emphasizing that the rule allows for availing Cenvat credit on capital goods in two stages - 50% in the year of receipt and the remaining 50% in subsequent years if the goods are in possession and use of the manufacturer for final products. The Court noted that the rule did not explicitly require the goods to be put to use for manufacturing final products, but rather emphasized possession and use by the manufacturer. In this case, the capital goods were in possession and use for setting up the laboratory, fulfilling the conditions of the rule.Ultimately, the High Court upheld the Tribunal's decision, ruling in favor of the respondent and dismissing the appeal by the Revenue. The Court affirmed that the respondent was entitled to avail the remaining 50% Cenvat credit on the capital goods purchased, as they were in possession and use for the purpose of setting up the laboratory, aligning with the requirements of Rule 4(2) of the Cenvat Credit Rules, 2002.