Appellate tribunal allows Cenvat Credit on capital goods, citing retrospective rule change.

The appellate tribunal held that the appellant was entitled to Cenvat Credit on the capital goods as they were not used exclusively for manufacturing exempted goods for the required two-year period as per the substituted Rule 6(4). The retrospective effect of the substitution supported this decision, leading to the setting aside of the impugned order and allowing the appeal.

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Issues:
1. Admissibility of Cenvat Credit on capital goods used for manufacturing exempted goods.
2. Interpretation of Rule 6(4) of the Cenvat Credit Rules, 2004.
3. Application of exemption notifications 29/2004-CE and 30/2004-CE.
4. Retrospective effect of the substitution of Rule 6(4).

Analysis:
1. The case involved the question of whether Cenvat Credit was admissible on capital goods used for manufacturing exempted goods. The appellant received a warping machine in November 2014 and availed Cenvat Credit. The department contended that since the appellant was manufacturing exclusively exempted goods at the time of receipt, Cenvat Credit was not admissible under Rule 6(4) of the Cenvat Credit Rules, 2004.

2. The appellant argued that the goods manufactured were not per se exempted and started clearing goods under a different exemption notification from August 2016. They cited various judgments to support their contention that the capital goods were not used exclusively for exempted goods. Additionally, they highlighted the substitution of Rule 6(4) by notification 13/2016-CE (N.T.) dated 01/03/2016, which imposed a two-year restriction on availing credit for capital goods used exclusively for exempted goods.

3. The Revenue reiterated that the capital goods were used for manufacturing exclusively exempted goods, thus barring the appellant from Cenvat Credit as per Rule 6(4). However, the appellant argued that the substitution of Rule 6(4) allowed credit if the capital goods were not used continuously for two years for exempted goods, which was the case in their situation.

4. The presiding member analyzed the substituted Rule 6(4) and concluded that the restriction on availing credit for capital goods used in manufacturing exempted goods applied only if the goods were used exclusively for two years from installation. Since the appellant started manufacturing dutiable goods before the completion of two years, the restriction did not apply. The presiding member also noted that the substitution had retrospective effect, supported by relevant case law.

5. In conclusion, the presiding member held that Cenvat Credit on the capital goods was admissible, setting aside the impugned order and allowing the appeal based on the interpretation of Rule 6(4) and the application of exemption notifications.

Judgment:
The appellate tribunal held that the appellant was entitled to Cenvat Credit on the capital goods as they were not used exclusively for manufacturing exempted goods for the required two-year period as per the substituted Rule 6(4). The retrospective effect of the substitution supported this decision, leading to the setting aside of the impugned order and allowing the appeal.

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