CENVAT credit on capital goods survives SSI exemption and may be used after the exemption period ends.

CENVAT credit taken on capital goods was held not to lapse merely because a manufacturer later availed Small Scale Industry exemption. The relevant CENVAT Credit Rules and the exemption notification were read harmoniously to mean that any lapse on opting for exemption applied to inputs and input services, not capital goods. Credit on capital goods could be taken even during the exemption period, though utilisation remained in abeyance while the exemption operated. Once the SSI exemption ended, the credit could be carried forward and used, and consequential relief followed.

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Issues: Whether CENVAT credit taken on capital goods during a taxable period lapses when the manufacturer later avails Small Scale Industry exemption, and whether such credit can be utilised after the exemption ceases.

Analysis: On a harmonious reading of the relevant CENVAT Credit Rules and the SSI exemption notification, the lapse contemplated on opting for exemption applies to credit relatable to inputs and input services, not to capital goods. The rules permitted availment of credit on capital goods even during the exemption period, while utilisation of that credit was only kept in abeyance during the operation of the exemption. The credit was therefore not extinguished merely because the appellant later availed SSI exemption.

Conclusion: The CENVAT credit on capital goods did not lapse and was validly carried forward and utilised after the SSI exemption period ended. The appeal succeeds in favour of the assessee.

Final Conclusion: The impugned order was set aside and the appellants were held entitled to the credit and consequential relief.

Ratio Decidendi: Credit taken on capital goods is not forfeited merely because the manufacturer subsequently avails SSI exemption, unless the governing rules or notification expressly provide for such lapse.

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