2016 (8) TMI 785 - AT - Central Excise

Tribunal rules against appellant's CENVAT credit claim on capital goods during duty exemption transition.

The Tribunal dismissed the appellant's appeal challenging the denial of CENVAT credit on capital goods received during a period of exemption from Central ... Cenvat credit - availed CENVAT credit on capital goods and services received by them during the period 01/04/2005 to 28th of February 2006 - asbestos cement sheets were chargeable to nil rate of duty up to 28/02/2006 but w.e.f. 1st of March 2006 the goods became chargeable to duty at the rate of 8% - Held that:- there is no doubt that at the time of receipt of capital goods, the final products of the appellant were chargeable to nil rate of duty and therefore these capital goods fall within the purview of sub rule 4 of rule 6 and hence not entitled to Cenvat credit. The only weak argument advanced by the appellant is that the credit has been taken in the same financial year in which their final products became dutiable. We find that this is not a valid reason to permit such credits. By applying the decision of Larger Bench of this Tribunal in the case of Spenta International Ltd versus Commissioner of Central Excise, Thane [2007 (8) TMI 25 - CESTAT, MUMBAI], since on the date of receipt of capital goods, the final products were chargeable to nil rate of duty, the appellant becomes in-eligible for availing the credit of duty paid on the capital goods. - Decided against the assessee. Issues:1. Availment of CENVAT credit on capital goods received during a period of exemption from Central excise duty.Analysis:The appeal before the Appellate Tribunal CESTAT New Delhi challenged the order passed by the Commissioner (Appeals) regarding the demand of CENVAT credit availed by the appellant on capital goods received during a period when their final products were exempted from Central excise duty. The appellant, a manufacturer of asbestos cement sheets, transitioned from nil duty rate to an 8% duty rate on their goods from March 1, 2006. The appellant registered with the Central Excise Department and claimed CENVAT credit for capital goods and services received from April 1, 2005, to February 28, 2006, during the exemption period. The original authority confirmed the demand, which was upheld by the Commissioner (Appeals), leading the appellant to appeal to the Tribunal.The main argument put forth by the appellant was that their final product became dutiable in the financial year 2005-2006, and the capital goods were received during the same period, entitling them to CENVAT credit. However, Rule 6 of the CENVAT Credit Rules, specifically sub rule 4, prohibits CENVAT credit on capital goods used exclusively in the manufacture of exempted goods. As the final products of the appellant were initially chargeable to nil duty rate when the capital goods were received, they did not qualify for CENVAT credit as per the rule.The Tribunal referenced a previous decision by a Larger Bench in the case of Spenta International Ltd versus Commissioner of Central Excise, Thane, where it was established that credit eligibility is determined based on the duty liability of the final product at the time of receiving capital goods. Applying this principle to the appellant's case, where the final products were initially chargeable to nil duty rate, the Tribunal concluded that the appellant was ineligible for availing the credit of duty paid on the capital goods. Therefore, the appeal filed by the appellant was dismissed, and the appeal by the revenue succeeded.