Cenvat credit allowed on capital goods for intermediate products used in final product production

The Appellate Tribunal CESTAT, Mumbai, held that Cenvat credit is available on capital goods used in the manufacture of intermediate products exempt from duty, which are further used in the production of final products subject to duty payment. The Tribunal relied on CBEC circulars to establish that as long as the final products attract duty and are cleared on payment of duty, Cenvat credit is admissible on all inputs involved. The appellants were deemed entitled to the credit, leading to the setting aside of the order for recovery of Cenvat credit and penalty, and the appeal was allowed.

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Issues Involved: The admissibility of Cenvat credit on capital goods used in the manufacture of intermediate products after 1-4-2000.

Summary:
The Appellate Tribunal CESTAT, Mumbai, comprising Ms. Jyoti Balasundaram, Member (J), and Shri Moheb Ali M., Member (T), heard an application for waiver of pre-deposit of duty and penalty. The issue in dispute was whether Cenvat credit is available on capital goods used in the manufacture of intermediate products exempt from duty, which are further used in the production of final products subject to duty payment. The department contended that post 1-4-2000, Cenvat credit is not available on exempted goods.

Upon review of CBEC circulars, the Tribunal found clarity on the matter. Circular dated 3-4-2000 stated that Cenvat credit should not be denied if inputs are used in the intermediate production of final products, even if the intermediate stage is exempt from duty. Another relevant circular, No. 665/56/2002-CX dated 26-9-2002, emphasized that Cenvat credit is permissible on capital goods used in the manufacture of intermediate goods exempt from duty, which are then used in the production of finished goods subject to duty payment. These circulars established that as long as the final products, in which the exempted intermediate products are consumed, attract duty and are cleared on payment of duty, Cenvat credit is admissible on all inputs involved.

Consequently, the Tribunal held that the appellants were entitled to the credit in question, setting aside the order for recovery of Cenvat credit and penalty, and allowing the appeal.

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