2006 (1) TMI 278 - AT - Central Excise

Cenvat/Modvat - Capital goods - Spares components and parts - Penalty - Mis-interpretation of law

Summary

Issues:
The issues involved in the judgment are the eligibility of Cenvat credit on capital goods, interpretation of Rule 4(2)(a) and Rule 4(2)(b) of Cenvat Credit Rules, 2002, and imposition of penalty.

Eligibility of Cenvat Credit on Capital Goods:
The appellant received various capital goods as components/parts and availed full Cenvat credit of 100% of the duty paid. However, the revenue contended that the appellant was only eligible for 50% credit as per Rule 4(2)(a) of Cenvat Credit Rules, 2002. The demand was confirmed against the appellant based on this interpretation, and a penalty was imposed.

Interpretation of Rule 4(2)(b) of Cenvat Credit Rules, 2002:
The appellant argued that Rule 4(2)(b) makes a distinction between capital goods and components/spares, entitling them to full credit of 100% since the capital goods were in the form of components and spares. They also claimed that they should have been allowed to take the remaining 50% credit in the subsequent financial year. However, the Tribunal clarified that the distinction made in the rule pertains to possession of the capital goods by the assessee, and the balance credit can be taken in a subsequent financial year only if the capital goods are still in possession.

Imposition of Penalty:
Regarding the penalty imposed on the appellant, the Tribunal found that the appellant had taken the credit in good faith and had duly informed the authorities. The Tribunal concluded that the misinterpretation of the law did not indicate any malice on the part of the appellant. Therefore, the penalty was deemed unjustified and set aside.

The Tribunal disposed of the appeal by upholding the demand for 50% Cenvat credit on capital goods as per Rule 4(2)(a) and clarifying that the balance credit can be availed in the subsequent financial year subject to fulfillment of conditions under Rule 4(2)(b). The penalty imposed on the appellant was overturned due to the absence of any malicious intent in taking the credit.