Capital goods Cenvat credit cannot be carried forward in the original unit after transfer of the machine.

Capital goods credit under the Cenvat Credit Rules, 2001 could not be claimed for the subsequent year where the permissible first-year credit had already been taken and one machine had been transferred out of the factory. The Tribunal found that the correct course after transfer was to reverse the credit relating to the transferred machine and allow credit at the receiving unit, not to retain the balance in the original unit. It held that decisions cited by the appellant concerned a different situation where less than 50% credit had been availed in the first year, and that the amended provision could not be applied retrospectively. The balance credit was therefore inadmissible, and the demand and penalty were upheld.

---

---

Issues: Whether the appellant was entitled to take the balance Cenvat credit on capital goods in the subsequent year when one of the two machines had already been transferred to another unit after availing credit in the first year.

Analysis: The credit on both capital goods had admittedly been taken to the extent of 50% in the first year under Rule 4(2)(a) of the Cenvat Credit Rules, 2001. One Auto Coner was transferred to another unit within two days, yet the balance credit was taken in the next financial year although the machine was no longer available in the original factory. The Tribunal held that the decisions relied on by the appellant dealt with a different situation, namely where less than 50% credit had been taken in the first year and the balance was carried forward. Here, the appellant had already availed the permissible first-year credit on both machines, and upon transfer of one machine the correct course was to reverse the credit relating to the transferred machine and take credit at the receiving unit. The Tribunal also accepted the view that the subsequent year's credit could not be sustained as it would defeat the scheme of the Rules and the amended provision had no retrospective effect.

Conclusion: The balance Cenvat credit of Rs. 5,62,949/- was not admissible and the demand and penalty were upheld.

Final Conclusion: The appeal failed because the credit scheme for capital goods was not complied with in the manner required by the Rules, and the order confirming denial of credit and penalty was sustained.

Ratio Decidendi: Where capital goods on which permissible first-year credit has been taken are transferred out of the factory, further credit cannot be claimed in the absence of the goods in the original unit, and the credit mechanism must be followed strictly as prescribed by the Cenvat Credit Rules.

---