Cenvat credit on capital goods required actual use before 10.09.2004, with interest payable for premature availment.

Balance 50% Cenvat credit on capital goods was not admissible before the goods were put to use under Rule 57AC(2) of the Central Excise Rules, 1944 read with Rule 4 of the Cenvat Credit Rules, 2002, because mere possession was insufficient for the relevant period. The later amendment under Rule 4(2)(b) of the Cenvat Credit Rules, 2004 removed the use condition from 10.09.2004, so the assessee became entitled to the balance credit from that date. Interest remained payable for the period during which credit had been availed prematurely, up to 09.09.2004.

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Issues: Whether the balance 50% Cenvat credit on capital goods was admissible before the capital goods were put to use, and whether the assessee became eligible to take the credit from 10.09.2004 with liability to pay interest for the earlier period.

Analysis: The dispute related to the regime under Rule 57AC(2) of the Central Excise Rules, 1944 read with Rule 4 of the Cenvat Credit Rules, 2002, under which only 50% of the credit could be taken in the year of receipt and the balance could be taken in subsequent financial year(s) only when the capital goods were in possession and use. The credit had been availed before actual use, and the circular relied on in adjudication clarified that for the relevant period mere possession was insufficient. The later regime under Rule 4(2)(b) of the Cenvat Credit Rules, 2004 omitted the use condition with effect from 10.09.2004, so the appellant became entitled to the balance credit from that date, though interest remained payable for the period during which the credit had been taken prematurely.

Conclusion: The balance 50% credit taken before use was not admissible for the earlier period, but the appellant was entitled to the credit from 10.09.2004, subject to payment of interest up to 09.09.2004.

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