Cenvat credit on capital goods in later year requires continued possession and use; deferred credit was disallowed.

Balance Cenvat credit on capital goods in a subsequent financial year was admissible only if the goods remained in the manufacturer's possession and use during that year. Rule 57AC(2)(a) allowed only 50% credit in the year of receipt, while Rule 57AC(2)(b) conditioned the deferred balance credit on continued possession and use. Rule 57AC(2)(c) concerning uninstalled capital goods received before 1 April 2000 did not override that requirement. As the capital goods had ceased to be used from December 2000, the statutory condition for claiming the balance credit in 2001-02 was not satisfied and recovery was upheld.

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Issues: Whether the assessee was entitled to avail the balance 50% Cenvat credit on capital goods in the subsequent financial year when the capital goods were no longer in use.

Analysis: Rule 57AC(2)(a) permitted only 50% credit in the same financial year in which the capital goods were received. Rule 57AC(2)(b) allowed the balance credit in a subsequent financial year only if the capital goods continued to remain in the possession and use of the manufacturer. Rule 57AC(2)(c) dealt with capital goods received but not installed before 1 April 2000 and was not construed to override the requirement in clause (b). As the capital goods had ceased to be used from December 2000 onwards, the statutory condition for availing the balance credit in 2001-02 was not satisfied.

Conclusion: The assessee was not entitled to the balance 50% Cenvat credit, and the demand confirming its recovery was upheld.

Ratio Decidendi: Balance Cenvat credit on capital goods in a subsequent financial year is admissible only when the capital goods remain in the possession and use of the manufacturer during that year.

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