1.
Sir,
Prior to 1.4.2016 rule 6 (40 read as: -
"No CENVAT credit shall be allowed on capital goods which are used exclusively in the manufacture of exempted goods or in providing exempted services, other than the final products which are exempt from the whole of the duty of excise leviable thereon under any notification where exemption is granted based upon the value or quantity of clearances made in a financial year.”
From 1.4.2016 the same rule reads as: -
"No CENVAT credit shall be allowed on capital goods used exclusively in the manufacture of exempted goods or in providing exempted services for a period of two years from the date of commencement of the commercial production or provision of services, as the case may be, other than the final products or output services which are exempt from the whole of the duty of excise leviable thereon under any notification where exemption is granted based upon the value or quantity of clearances made or services provided in a financial year."
Provided that where capital goods are received after the date of commencement of commercial production or provision of services, as the case may be, the period of two years shall be computed from the date of installation of such capital goods.
In my opinion it is the intention of the Govt. that credit of duty paid on capital goods will not be allowed for two year if the capital good are used in the manufacture of exempted goods or used for providing exempted service. Even if the goods or services become dutiable or taxable during the two year period no credit will be allowed. after two years if they become dutiable/taxable then the Government may allow the credit. But it is not clear since the amendment was not discussed by J.S., TRU-I in his D.O. Letter D.O. F. No. 334/8/2016-TRU dated 29.2.2016. Therefore my advice is you may take up this matter with the Government and obtain proper clarification.