2009 (2) TMI 186 - AT - Central Excise

Tribunal allows 50% Cenvat Credit on unused capital goods, clarifies possession and use rules.

COMMISSIONER OF CENTRAL EXCISE, MUMBAI-II Versus FIAT INDIA PVT. LTD.

The Tribunal ruled in favor of M/s. Fiat India Pvt. Ltd., allowing the availment of 50% Cenvat Credit on capital goods not put to use immediately, ... Cenvat Credit on Capital Goods – use of capital goods in the subsequent year for availing balance 50% credit - The balance 50% was availed by them in the subsequent year i.e. in the month of April, 2003, even though the capital goods though in their possession but were not put to use. As such, it was alleged that they had not fulfilled the condition of provisions of Rule 4(2) of Cenvat Credit Rules, 2002. It was further observed that the said capital goods were put to use on various months of the year 2003-04 and the respondents had not acquired any new capital goods during the year 2003-04. – held that - CBEC Circular dated 3-4-2000 cannot be considered as beneficial to the assessee as it nowhere holds that rest 50% credit can be availed in subsequent financial year even before installation of the capital goods - , it has been held that 50% of the balance credit cannot be allowed without installation/use of the goods in the financial year during which it is claimed - interest of ₹ 4,43,984/- is payable – penalty not to be imposed. Issues:1. Availment of Cenvat Credit on capital goods not put to use.2. Interpretation of Rule 4(2)(b) of Cenvat Credit Rules, 2002.3. Applicability of Tribunal's decisions in similar cases.4. CBEC Circular on installation as a prerequisite for availing credit.5. Imposition of interest and penalty.Issue 1: Availment of Cenvat Credit on capital goods not put to use:The case involved M/s. Fiat India Pvt. Ltd. availing 50% Cenvat Credit on capital goods in 2002-03 without putting them to use until 2003-04. The dispute centered on whether the balance 50% credit could be claimed before actual use for production, as required by Rule 4(2)(b) of the Cenvat Credit Rules, 2002.Issue 2: Interpretation of Rule 4(2)(b) of Cenvat Credit Rules, 2002:The Tribunal analyzed Rule 4(2)(b) which mandates that capital goods must be in possession and use for production before availing Cenvat Credit. The rule emphasizes both possession and use, indicating that the goods should be utilized for manufacturing purposes to qualify for credit.Issue 3: Applicability of Tribunal's decisions in similar cases:The Commissioner (Appeals) referred to previous Tribunal decisions in Ballarpur Industries and Ispat Industries cases to support the respondent's position. However, the Tribunal clarified that these decisions were related to the first 50% credit, not the balance 50% credit in question in this case.Issue 4: CBEC Circular on installation as a prerequisite for availing credit:The Tribunal examined a CBEC Circular stating that installation is not a prerequisite for the initial 50% credit but did not extend this exemption to the balance 50% credit. It emphasized that possession and use were crucial for availing the remaining credit.Issue 5: Imposition of interest and penalty:The Tribunal held that while interest of Rs. 4,43,984 was payable by the respondents for premature credit availment, there was no justification for imposing an equivalent penalty. Citing legal precedents, it noted that penalties are not warranted when there is a genuine interpretation issue with legal provisions.In conclusion, the Tribunal set aside the Commissioner's decision, ordering the payment of interest by the respondents but dismissing the penalty. The judgment highlighted the significance of possession and use of capital goods for availing Cenvat Credit and clarified the nuances of the rules governing such credit transactions.