Capital goods credit may survive exempt use if dutiable clearances occur within the prescribed period

Credit on capital goods under the Cenvat Credit Rules may remain admissible where dutiable goods are cleared on payment of duty within the prescribed two-year period, even if the goods are also used for exempted manufacture during that time. The Tribunal noted that the lower authorities denied credit mainly on the view that the amended Rule 6(4) was not retrospective, but the factual claim of duty-paid clearances in April 2017 and June 2017 had not been verified. The matter was therefore remanded for fresh verification of whether the requisite dutiable clearances occurred within time, leaving the credit entitlement open pending that finding.

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Issues: Whether credit on capital goods was admissible where the appellant claimed that dutiable goods were cleared within two years from the date of taking credit, and whether the amended rule governing such credit operated retrospectively.

Analysis: The dispute turned on the interaction between the exemption enjoyed for textile articles, the use of capital goods for exempted manufacture, and the later amendment to Rule 6(4) of the Cenvat Credit Rules, 2004. The Tribunal noted that the lower authorities had rejected credit primarily on the view that the amendment was not retrospective, but no verification had been made regarding the appellant's claim that duty was paid on clearances in April 2017 and June 2017. It was also observed that, on the legal position already taken in an earlier Tribunal decision, credit on capital goods can be admissible where dutiable goods are manufactured and cleared on payment of duty within two years from the relevant date, even if the capital goods are also used for exempted goods during that period.

Conclusion: The issue was not finally decided on facts and was sent back for verification of whether dutiable clearances were made within the prescribed period; the appellant's entitlement to credit was kept open on that basis.

Final Conclusion: The matter was returned to the adjudicating authority for fresh decision after verification, and the appeal succeeded only to that extent.

Ratio Decidendi: Where entitlement to capital goods credit depends on whether dutiable goods were cleared within the prescribed period, the factual verification of such clearances is essential before denying or allowing the credit, and the benefit may remain available even if the capital goods were also used for exempted production during that period.

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