2026 (2) TMI 234 - AT - Service Tax

CENVAT credit eligibility for capital goods depends on commissioning date not receipt; credit upheld after commissioning.

CENVAT credit on capital goods is governed by the date when the goods became usable for providing the taxable service rather than mere date of receipt. ... CENVAT credit on capital goods - eligibility date for CENVAT credit -- date of commissioning/start of use versus date of receipt - application of Rule 3 of the CENVAT Credit Rules, 2004 regarding availment of credit - distinguishing precedents that determine eligibility at date of receipt (Surya Roshni and similar decisions) - HELD THAT:- It is on record that the appellant has supplied these tangible goods, for use, after the same were fully commissioned by the appropriate authority. Therefore, the CENVAT Credit on capital goods was availed by the appellant only after ‘supply of tangible goods for use’ came into existence as a taxable service. In view of the above, we do not find any infirmity in the availment of the above credit on capital goods by the appellant after 16.05.2008, when ‘supply of tangible goods for use’ became a taxable service. In the present case, the chassis and concrete transit mixers, purchased separately, had no independent or standalone utility for the appellant. By their very nature, the chassis and the mixers are incapable of being used for any service unless the mixers are duly mounted on the chassis, balanced, calibrated, and certified by the vendor. Until such mounting and certification, the capital goods remained incomplete, non-functional, and commercially unusable. Thereafter, engineers carried out mounting of the mixers on the chassis, followed by balancing, alignment, calibration, and installation of ancillary components such as hoppers, ladders, and safety fixtures. The assembled equipment was checked by the engineers, where they conducted final commissioning and issued commissioning / commencement reports. Unless and until such commissioning reports were issued, the machines had no operational value and could not be deployed for providing any service. The machines were admittedly commissioned and became operational only after 16.05.2008. Accordingly, in the present case, the appellant has availed the CENVAT Credit only after the taxable service of ‘supply of tangible goods for use’ came into effect from 16.05.2008. Thus, we observe that the case-law cited by the Ld. Authorized Representative of the Revenue are distinguishable on facts. Thus, we hold that the appellant has rightly availed the CENVAT Credit on capital goods in the month of June, 2008 and therefore, the impugned order denying the CENVAT Credit on capital goods as availed by the appellant is legally unsustainable. Since the demand for recovery of credit raised against the appellant does not survive, the question of demanding interest or imposing penalty thereon does not arise. Accordingly, the said demands are also set aside. In the result, we set aside the impugned order and allow the appeal, with consequential relief, if any, as per law. Issues: Whether CENVAT credit availed in June 2008 on capital goods (transit mixers and chassis) purchased earlier is admissible where the capital goods became operational only after mounting and commissioning after 16.05.2008 (i.e., whether eligibility for credit is to be determined on date of receipt or date of commencement/use/commissioning).Analysis: The Tribunal examined evidence showing that chassis and mixers, though purchased separately earlier, had no independent or standalone utility until mounted, balanced, aligned, calibrated, and finally commissioned as assembled vehicles. Commissioning records and job-work bills demonstrate that the completed machines came into existence and were capable of providing the taxable service only after 16.05.2008, the date from which 'supply of tangible goods for use' became taxable. The Tribunal reviewed applicable CENVAT Credit Rules including provisions governing availment of credit on capital goods and distinguished authorities that determine eligibility solely by date of receipt where capital goods were usable on receipt or were used for exempted output prior to becoming dutiable.Conclusion: The appellant was entitled to avail CENVAT credit of Rs.41,87,562/- in June 2008 because the capital goods became operational and were put to use only after 16.05.2008; the impugned orders denying the credit and imposing interest and penalty are set aside and the appeal is allowed.Ratio Decidendi: For capital goods that are not functional or commercially usable on receipt, eligibility for CENVAT credit is determined by the date of commencement of use/commissioning (date when the capital goods become operational for providing the output service), not by the date of receipt.