Appellant entitled to cenvat credit for capital goods despite prior exemption

The appellant, previously availing exemption under Notification No. 50/2003-CE, procured capital goods before opting out from the exemption. The court ruled in favor of the appellant, allowing them cenvat credit under Rule 4(2)(a) of Cenvat Credit Rules, 2004, as they availed credit in the year they produced both dutiable and exempted goods. The judgment emphasized the timing and nature of goods during procurement in determining credit entitlement, setting aside the denial of cenvat credit and granting the appeal with consequential relief.

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Issues:
Appeal against denial of cenvat credit on capital goods due to availing Area Based Exemption under Notification No. 50/2003-CE dated 10.06.2003.

Analysis:
The appellant, located in Himachal Pradesh, availed exemption until 27.11.2013 under Notification No. 50/2003-CE. During 2013-14, they procured capital goods before opting out from the exemption, claiming 50% cenvat credit under Rule 4 (2) (a) of Cenvat Credit Rules, 2004. The Revenue contended that as the appellant availed exemption when procuring the goods, they are not entitled to cenvat credit. Proceedings ensued, leading to the present appeal.

The appellant's consultant argued citing the Madras High Court's decision in Kaleesuwari Refinery Pvt. Ltd. vs. CESTAT-2016, asserting their right to cenvat credit. Additionally, reference was made to the Tribunal's decision in CCE vs. Pepsico India Holdings Ltd-2015. Conversely, the Revenue argued that since the appellant procured capital goods while manufacturing exempted goods, cenvat credit is not permissible.

Upon hearing both parties, the judge examined Rule 4 (2) (a) of Cenvat Credit Rules, 2004, which allows 50% credit in the financial year of procurement and the remaining in the subsequent year. The rule also prohibits credit on capital goods used exclusively for exempted goods. Post 27.11.2013, when the appellant's goods became dutiable, they were eligible for cenvat credit in the year of procurement. The Madras High Court's decision highlighted the importance of allowing credit when goods were dutiable during procurement, even if they later became exempted.

Considering the appellant availed credit in the same year they produced both dutiable and exempted goods, the judge ruled in their favor, holding them entitled to cenvat credit under Rule 4 (2) (a) of CCR, 2004. Consequently, the impugned order was set aside, and the appeal was allowed with any consequential relief.

This judgment clarifies the eligibility of cenvat credit on capital goods when goods procured during a period of exemption later become dutiable, emphasizing the importance of timing and the nature of goods produced during procurement in determining credit entitlement.

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