2015 (10) TMI 846 - AT - Central Excise

Tribunal allows CENVAT Credit on capital goods for mixed production

The Tribunal ruled in favor of M/s Pepsico India Holdings Ltd., allowing the admissibility of CENVAT Credit on capital goods used for manufacturing both ... CENVAT Credit - Capital goods - initially used for exempted goods - later used for dutiable goods also - Held that:- Expression exclusively used “also includes intention to use” as provided under Rule 6(4) of the Cenvat Credit Rules. As the appellant had admittedly informed the Revenue at the time of commencement of production that it will utilize the said machinery installed for manufacture of both dutiable and non-dutiable products, it cannot be said that the said machinery is exclusively used for manufacture of the exempted goods. Capital goods in question have a life over several accounting years and as such the intention at the time of installation is also the relevant factor. For the temporary use for few months in manufacture of only exempted goods will not disable the assessee in availing the CENVAT Credit and utilizing the same for manufacture of dutiable goods. It is also an admitted fact that the CENVAT Credit so availed have been utilized only after Nov. 05 whereas the production of dutiable goods started admittedly in June, 05. Thus, I hold that the respondent assessee is entitled to CENVAT Credit on the capital goods in question - Decided against Revenue. Issues:- Admissibility of CENVAT Credit on capital goods used for manufacturing both dutiable and exempted goods.- Interpretation of Rule 6 of Cenvat Credit Rules, 2002 regarding admissibility of CENVAT Credit.- Application of legal precedents in determining eligibility for CENVAT Credit.Admissibility of CENVAT Credit on capital goods used for manufacturing both dutiable and exempted goods:The case involved M/s Pepsico India Holdings Ltd., engaged in manufacturing excisable goods and Mango Slice falling under different chapters of the Central Excise Tariff Act, 1985. The Revenue contended that CENVAT Credit on capital goods used exclusively for exempted goods is inadmissible under Rule 6 of Cenvat Credit Rules, 2002. A show-cause notice was issued for recovery of CENVAT Credit on capital goods used for manufacturing exempted goods. The Commissioner (Appeals) remanded the case to ascertain if the capital goods were used for both dutiable and exempted products. The appellant argued that the capital goods were used for dutiable products only after a certain period, making the credit admissible. The Commissioner (Appeals) found in favor of the assessee, stating that the capital goods were used for both types of products, allowing the CENVAT Credit.Interpretation of Rule 6 of Cenvat Credit Rules, 2002 regarding admissibility of CENVAT Credit:The Revenue appealed before the Tribunal, arguing that the capital goods were exclusively used for exempted goods until a certain period, making the credit inadmissible. They cited legal precedents to support their argument, emphasizing that eligibility for CENVAT Credit should be determined at the time of receipt of capital goods. The Revenue relied on the ruling in the case of Spenta International Ltd. Vs. Commissioner of Central Excise, Thane to support their contention that credit eligibility should be based on the dutiability of the final product at the time of receiving capital goods. The Tribunal considered the intention to use the machinery at the time of installation, concluding that the appellant's intention to use the machinery for both dutiable and non-dutiable products allowed for the CENVAT Credit, dismissing the Revenue's appeal.Application of legal precedents in determining eligibility for CENVAT Credit:The appellant argued that the ruling in the case of Surya Roshni Ltd. was not applicable to their case as they had informed the Revenue about their intention to use the machinery for both types of products at the time of installation. They distinguished the ruling in the case of KS Oils Ltd., stating it was passed without considering existing rulings. The Tribunal held that the appellant's intention to use the machinery for both types of products, along with the delayed utilization of the CENVAT Credit after the commencement of dutiable goods production, justified the admissibility of the credit. The Tribunal rejected the Revenue's appeal, affirming the eligibility of the assessee for CENVAT Credit on the capital goods in question.This detailed analysis of the judgment highlights the issues of admissibility of CENVAT Credit, interpretation of Rule 6 of Cenvat Credit Rules, and the application of legal precedents in determining eligibility for the credit. The Tribunal's decision favored the assessee, allowing the CENVAT Credit on capital goods used for manufacturing both dutiable and exempted goods based on the intention to use the machinery for both types of products at the time of installation.