Tribunal allows Cenvat credit on capital goods despite partial non-exempt use

The Tribunal upheld the Order-in-Appeal allowing the respondent to avail Cenvat credit on capital goods used in manufacturing, despite clearing a small portion of goods without availing exemption. The Tribunal found that since a portion of goods was cleared on payment of duty, Rule 6(4) prohibiting credit on capital goods exclusively used in manufacturing exempted goods did not apply. The Tribunal held that as the capital goods were not exclusively used in manufacturing exempted goods, the respondent was entitled to the credit, rejecting the Revenue's appeal.

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Issues:
- Entitlement to Cenvat credit on capital goods used in manufacturing exempted goods.

Analysis:
The appeal was filed by Revenue against the Order-in-Appeal where the respondent, engaged in manufacturing manmade fabrics, availed Cenvat Credit on capital goods during the period of March 2015 to 2016. The dispute arose as the appellant cleared a small portion of fabrics without availing the exemption under Notification No. 30/2004-CE. The Department contended that the appellant could not avail the credit on capital goods under Rule 6(4) of the Cenvat Credit Rules, 2004, which prohibits credit on capital goods used exclusively in the manufacture of exempted goods. The original authority denied the credit, but the Commissioner (Appeals) allowed it, leading to the Revenue's appeal.

During the hearing, the Revenue argued that the capital goods were used for manufacturing goods cleared without payment of duty under the said notification, and the small quantity cleared on payment of duty was an attempt to wrongly avail the credit. The respondent's Counsel contended that since a portion of goods was cleared on payment of duty, the bar under Rule 6(4) did not apply. The Counsel also highlighted instances of export and job work done for manufacturers who cleared goods on payment of duty, supported by relevant case laws.

The Tribunal analyzed whether the respondent was entitled to the Cenvat credit on capital goods, considering that while most goods were cleared without duty, a small portion was cleared on payment. Referring to a similar case, the Tribunal observed that when goods could be cleared either with or without duty, capital goods were not exclusively used in the manufacture of exempted goods. Consequently, the Tribunal upheld the impugned order, rejecting the Revenue's appeal, as the capital goods were not exclusively used in manufacturing exempted goods, making Rule 6(4) inapplicable.

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