CENVAT credit on capital goods allowed where machinery was intended for and used in both exempted and dutiable production.

CENVAT credit on capital goods was held admissible where the machinery was not exclusively used for exempted goods. Rule 6(4) of the Cenvat Credit Rules, 2002 was applied on the footing that capital goods have a continuing life, so the relevant enquiry was not limited to the initial period of installation. Because the assessee had declared from the outset that the new line would serve both taxable and non-taxable beverages, the credit remained unutilised until dutiable manufacture began, and the machinery was thereafter used for both categories of goods. The denial of credit was set aside and the Revenue's challenge failed.

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Issues: Whether CENVAT credit on capital goods was admissible when the machinery was initially used for exempted goods but was intended to and later used for both exempted and dutiable goods under Rule 6(4) of the Cenvat Credit Rules, 2002.

Analysis: Rule 6(4) denies credit only where capital goods are exclusively used in the manufacture of exempted goods. The relevant consideration was not confined to the initial period of installation alone, because capital goods have a continuing life and the assessee had intimated at the outset that the new line would be used for both taxable and non-taxable beverages. The record showed that the credit remained unutilized until the assessee commenced manufacture of dutiable products, and the machinery was then used for both categories of goods. On these facts, the machinery could not be treated as exclusively used for exempted goods.

Conclusion: The assessee was entitled to CENVAT credit on the capital goods and the Revenue's appeal failed.

Final Conclusion: The order confirming denial of credit was set aside in substance, and the Revenue's challenge was rejected with consequential relief to the assessee.

Ratio Decidendi: Capital goods are not treated as exclusively used for exempted goods where, on the facts and the assessee's declared intention at installation, they are intended for and in fact used for both exempted and dutiable goods; credit cannot be denied merely because the initial period of use was for exempted production.

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