CENVAT credit on capital goods: balance credit is available only after possession and use, with interest for premature availment.

Under the CENVAT Credit Rules, the balance 50% of credit on capital goods could be taken in a subsequent financial year only when the goods were both in the manufacturer's possession and put to use in that year. The assessee could not isolate the reference to a subsequent year to bypass the use requirement, and precedents supported the view that premature availment was impermissible. Where credit was taken before installation or use, the Revenue was entitled to levy interest.

---

---

Issues: Whether the assessee could avail the second 50% of CENVAT credit on capital goods in the subsequent financial year before the capital goods were installed or put to use, and whether interest on such premature availment was sustainable.

Analysis: The governing rule permitted balance credit in a subsequent financial year only if the capital goods were in the possession and use of the manufacturer in that subsequent year. The relevant words were required to be read together, and the assessee could not isolate the expression relating to a subsequent year to dispense with the requirement of use. The cited precedents supported the view that the second instalment of credit was not admissible unless the capital goods had been put to use, and where credit was taken before that stage, the Revenue was entitled to interest.

Conclusion: The assessee was not entitled to avail the second 50% credit before the capital goods were put to use, and the demand of interest was sustainable, in favour of Revenue.

Ratio Decidendi: Under the CENVAT Credit Rules, the balance credit on capital goods can be taken only when the capital goods are both in possession and in use in the relevant subsequent financial year; premature availment is impermissible and attracts interest.

---