2016 (3) TMI 947 - AT - Central Excise

Cenvat credit allowed for leased capital goods used in manufacturing processes

Commissioner of Central Excise, Nagpur Versus Candico (I) Ltd.

The Tribunal held that Cenvat credit should be allowed for capital goods acquired on lease basis, even from a non-financing company, as long as the goods ... CENVAT credit denied on the condition that the capital goods so supplied by M/s. ITC Ltd. is not a financing company - Held that:- Present respondent is on a better footing as they have taken the capital goods from the principal manufacturer and against which they are paying the lease rent to the principal manufacturer. There is no dispute that the capital goods so procured on lease basis are indeed used in the manufacturer of final product on behalf of M/s. ITC Ltd. Applying the ratio of the German Remedies Ltd. (2002 (4) TMI 140 - CEGAT, MUMBAI ) the respondent is entitled for the credit. - Decided in favour of asseessee Issues:1. Disallowance of Cenvat credit on capital goods acquired on lease basis from a non-financing company.2. Interpretation of Rule 4(3) of the Cenvat Credit Rules.3. Application of precedents in determining admissibility of Cenvat credit.Issue 1: Disallowance of Cenvat credit on capital goods acquired on lease basis from a non-financing company:The case involved the respondent acquiring capital goods on lease from M/s. ITC Ltd. for job work. The Revenue proposed disallowing the credit as the goods were not procured from a financing company. The original authority disallowed the credit, but the Commissioner (Appeals) allowed it, citing a precedent. The key contention was whether Rule 4(3) required procurement from a financing company. The Tribunal held that as long as the capital goods were received and used in manufacturing, credit should be allowed, regardless of the supplier being a financing company.Issue 2: Interpretation of Rule 4(3) of the Cenvat Credit Rules:The Revenue argued that Rule 4(3) mandated procurement of capital goods on lease from a financing company to allow Cenvat credit. However, the Tribunal interpreted the rule differently, emphasizing that the source of capital goods did not affect credit admissibility. The Tribunal's analysis focused on the language of Rule 4(3) and concluded that the critical factor was the utilization of capital goods in manufacturing processes, irrespective of the supplier's status as a financing company.Issue 3: Application of precedents in determining admissibility of Cenvat credit:The respondent relied on the judgment in German Remedies Ltd. to support their claim for credit on capital goods acquired on lease. Additionally, reference was made to a Bombay High Court judgment emphasizing that ownership of capital goods was not a prerequisite for claiming credit. The Tribunal found the precedents applicable to the present case, highlighting that the respondent's use of capital goods for manufacturing, even on lease, warranted Cenvat credit. The Tribunal dismissed the Revenue's appeal, upholding the Commissioner's decision based on established legal principles and case law analysis.In conclusion, the Tribunal's judgment clarified the admissibility of Cenvat credit for capital goods acquired on lease, emphasizing the importance of utilization in manufacturing processes over the source of procurement. The decision underscored the significance of legal interpretation and precedents in resolving disputes related to tax credits and upheld the respondent's entitlement to the credit based on established legal principles and case law analysis.