CENVAT credit timing for capital goods installed later: balance credit allowed in subsequent years; recovery demand set aside

CENVAT credit on capital goods procured in earlier financial years but installed later was disputed on the ground that credit had to be taken only in the year of procurement/receipt. Interpreting Rule 2(a) and Rule 4 of the CENVAT Credit Rules, 2004, the HC held that Rule 4(2)(a) merely caps availment at 50% in the year of receipt, while Rule 4(2)(b) expressly permits taking the balance in any subsequent financial year; neither provision mandates that credit must be claimed only in the year of procurement. Since there was no legal basis to treat the later availment as illegal, the demand for recovery of the credit and the tribunal-confirmed recovery order were set aside, and the appeal was allowed.

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Issues Involved:
1. Legality of CENVAT credit availed on capital goods procured in 2007-08 and 2008-09 but installed in 2011.
2. Validity of the recovery of Rs. 15,95,332/- as CENVAT credit by the Revenue.

Summary:

Issue 1: Legality of CENVAT credit availed on capital goods procured in 2007-08 and 2008-09 but installed in 2011.

The appellant, engaged in the manufacture of oxygen/nitrogen, availed CENVAT credit on capital goods procured in 2007-08 but installed in 2011. The Revenue contended that CENVAT credit amounting to Rs. 22,93,920/- was available only during the financial years 2007-08 and 2008-09 as per Rule 4 (2) of the Cenvat Credit Rules. The Commissioner (Appeals) held that the appellant violated para 2B of Notification No. 32/99-CE dated 08.07.1999 by not utilizing the CENVAT credit in the month it was available, rendering them non-entitled to the benefit of the notification. The CESTAT, however, allowed the appeal to the extent of setting aside the demand of Rs. 22,93,920/- while upholding the recovery of Rs. 15,95,332/-.

Issue 2: Validity of the recovery of Rs. 15,95,332/- as CENVAT credit by the Revenue.

The appellant argued that there is no provision in the CENVAT Credit Rules, 2004 or the Central Excise Notification dated 08.07.1999 mandating that CENVAT credit must be availed in the year of procurement. The Supreme Court decisions in Madras Cements Ltd. vs. Commissioner of Central Excise and KCP Ltd. vs. Commissioner of Central Excise, Chennai were cited to support that CENVAT credit can be availed when the capital goods are utilized for manufacturing. The Court found that Rule 4 of the Cenvat Credit Rules, 2004 does not create an embargo on claiming CENVAT credit in subsequent financial years provided the capital goods are installed and used in the factory. The Court concluded that the assessee's claim for CENVAT credit was valid as long as it was availed during the period of exemption under the Notification dated 08.07.1999.

Judgment:

The Court held that the Commissioner (Appeals) and the CESTAT erred in allowing the recovery of Rs. 15,95,332/- as CENVAT credit availed by the appellant on the capital goods. Consequently, the judgment and order dated 02.05.2018 passed by the CESTAT to the extent of allowing the recovery was set aside. The appeal was allowed, and parties were to bear their own costs.

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