CENVAT on Capital Goods lying in the factory but not in usable condition

[Ashok Chopra]

Dear Experts,

We purchased capital goods for the manufacture of Alloy Coated Sheet and availed CENVAT Rs. 32.00 Lac. Utilized the same in the clearance of ENTIRELY DIFFERENT PRODUCT in the same premises, same unit and name and style. Due to certain problems, we withdraw the idea of manufacturing Alloy Coated Sheet and bear a loss more than Rs. 5.00 crore on the development. The said capital goods was installed in the unit for trial production, but we could not produce the same due to technical error, the machinery is designed wrongly and  is not in PRODUCTION, even no single final product has been manufactured due to design problem and may not be in production or may be in production for the manufacture of any other dutiable final product  or job work but not now after a long time.  Central Excise Department is insisting to debit the said CENVAT alongwith interest.  What should i do? more than a period of four years has already lapsed.  Pls guide me accordingly

AI Summary

CENVAT on capital goods: balance credit may be denied if goods remained unused during an earlier regulated period, enabling recovery.
CENVAT on capital goods: Rule 4(2)(a)&(b) permits taking an initial portion of credit in the year of receipt and the balance in the next financial year if the capital goods are in the factory; possession, not use, is generally sufficient. A CBEC circular dated 28 April 2006 clarified that during the earlier period when the rule expressly required 'use', the balance credit could not be allowed unless the goods were put to use, and recovery was directed for credits availed irregularly in that period.