2006 (1) TMI 411 - AT - Central Excise

Cenvat/Modvat - Capital goods - Imposition of Penalty - Notification 70/03-C.E. (N.T.), are clarificatory and retrospective - HELD THAT - There is no dispute regarding the status of moulds and dies, which are admittedly capital goods. Clause (b) of sub-rule (2) of Rule 57AC clearly covers the subject matter of this appeal. Admittedly, the capital goods as such were not in the possession and use of the manufacturer in 2001-2002 when the 50% balance credit in question was taken. Hence as rightly held by the lower authorities, the assessee was not entitled to take balance 50% of Cenvat credit on the moulds and dies in question. Rule 4(2)(a) lays down that up to 50% of Cenvat credit on capital goods received in the factory in a given financial year could be taken in the same year. Thus, the assessee seems to have acted under a bona fide belief that they are entitled to take balance credit in the subsequent financial year. This situation does not call for invocation of penal provisions against them. Hence I am of the view that the lower authorities should not have imposed any penalty on the assessee. In the result, it is held that the credit in question is not admissible to the appellants, but no penalty is imposable on them. Accordingly, the impugned order is sustained except in respect of imposition of penalty. The appeal is accordingly disposed of.

Summary

Issues: Disallowance of capital goods credit for moulds and dies in 2001-02 due to non-possession and use, interpretation of Rule 57AC(2)(b) regarding Cenvat credit, retrospective effect of amendments to Cenvat Credit Rules, imposition of penalty on the assessee.

Analysis:
1. The dispute arose when the lower authorities disallowed the balance 50% of Cenvat credit on moulds and dies for the financial year 2001-02, as the capital goods were no longer in possession and use of the manufacturer during that period. Rule 57AC(2)(b) required the capital goods to be in possession and use for claiming credit. The appellant argued that subsequent amendments to Rule 4(2)(b) allowed for taking the balance credit in the following financial year without the requirement of possession and use. The Board's Circular clarified the amendment's intent, emphasizing that the condition of possession and use was no longer mandatory for claiming the balance credit.

2. The Board's clarification indicated that the amendment to Rule 4(2)(b) did not have retrospective effect, implying that the previous rule requiring possession and use still applied during the relevant financial year. The appellant's contention that the amended provision should apply retrospectively was dismissed, as it was clear that the capital goods were not in possession and use in 2001-02 when the balance credit was claimed. The lower authorities' decision to disallow the credit was upheld based on the specific requirements of Rule 57AC(2)(b).

3. Drawing an analogy to Rule 4(2)(a) regarding Cenvat credit on capital goods received in a financial year, it was suggested that the destruction of the moulds and dies in the previous year could be viewed similarly to the clearance of capital goods in the same year, allowing for full credit. However, the appellant had opted for the 50% credit scheme and had not availed the full credit in the year of acquisition. Despite this, the appellant's belief in claiming the balance credit in the subsequent year was considered bona fide, warranting no penalty imposition.

4. The judgment concluded that while the credit was deemed inadmissible to the appellants due to non-compliance with possession and use requirements, no penalty should be imposed on them considering their genuine belief. The impugned order disallowing the credit was upheld, except for the penalty imposition, leading to the disposal of the appeal without penal consequences for the assessee.