Cenvat credit for SSI units on capital goods during exemption period remains admissible, with balance credit allowed later.

An SSI unit availing exemption under Notification No. 8/2003-C.E. is not barred from taking Cenvat credit on eligible inputs or capital goods received during the exemption period. Rule 3(1) permits such credit, and the credit on capital goods may be accumulated until the unit crosses the exemption threshold and starts paying duty. Rule 4(2) also allows up to 50% of the capital goods credit in the year of receipt, with the balance taken in later financial years. On this analysis, credit availed in the subsequent year remains consistent with the Cenvat Credit Rules, 2004, and the contrary view is unsustainable.

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Issues: Whether an SSI unit availing exemption under Notification No. 8/2003-C.E. could validly avail Cenvat credit on capital goods during the exemption period and whether availing the balance credit in the subsequent financial year was contrary to the Cenvat Credit Rules, 2004.

Analysis: Rule 3(1) of the Cenvat Credit Rules, 2004 permits availment of credit on eligible duties and does not bar an SSI unit from taking credit on inputs or capital goods received during the exempted period. The credit on capital goods may be accumulated until the unit crosses the exemption threshold and begins paying duty. Rule 4(2) further contemplates availment of up to 50% of the credit in the year of receipt and the balance in later financial years, and does not require that the whole credit must be taken in the year of receipt. The credit availed in the next financial year was therefore consistent with the legal framework, and the contrary view taken in the impugned order was unsustainable.

Conclusion: The credit on capital goods was legally admissible, and the demand, interest, and penalty could not survive.

Ratio Decidendi: An SSI unit is not barred from availing and accumulating Cenvat credit on capital goods during the exemption period, and Rule 4(2) permits the balance credit to be taken in subsequent financial years.

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