Cenvat credit on capital goods may be claimed in a later year when possession and use continue, even before actual manufacture begins.

Rule 4(2) of the Cenvat Credit Rules, 2002 permits the balance 50% of capital goods credit in a subsequent year where the goods remain in the manufacturer's possession and use, and does not require actual use in manufacture before the credit is taken. On that construction, machinery kept in possession and used for setting up the laboratory satisfied the condition, so the balance credit was allowable in the later year and the Revenue's challenge failed.

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Issues: Whether the balance 50% of Cenvat credit on capital goods could be availed in a subsequent financial year when the goods were in possession of the manufacturer but had not yet been put to actual use for manufacture of final products.

Analysis: Rule 4(2) of the Cenvat Credit Rules, 2002 permits 50% credit in the year of receipt of capital goods and the balance in a subsequent year if the capital goods are in the possession and use of the manufacturer of final products. The expression used in the rule was read as requiring continued possession and use, not actual operational use in manufacture before the balance credit could be taken. Since the machinery remained in possession and was being used for setting up the laboratory, the condition in the rule was satisfied.

Conclusion: The balance Cenvat credit was allowable on 1-4-2004, and the Revenue's challenge failed.

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