2006 (1) TMI 489 - AT - Central Excise

Summary

Issues:
1. Disallowance of Cenvat credit on capital goods due to possession and use requirements.
2. Interpretation of Rule 57AC(2)(b) and Rule 4(2)(b) regarding availment of balance credit.
3. Applicability of the possession and use condition in the same factory for availing balance credit.
4. Impact of the absence of the word "still" in Rule 4(2)(b) compared to Rule 57AC(2)(b).
5. Requantification of duty demands based on the judgment.

Issue 1 - Disallowance of Cenvat credit:
The appellant took Cenvat credit on capital goods received in their factory but faced disallowance by lower authorities as the goods were not in possession and use of the manufacturer in the Pondicherry unit when the credit was claimed. This led to appeal No. 751.

Issue 2 - Interpretation of Rule 57AC(2)(b) and Rule 4(2)(b):
The appellant argued that since the capital goods were removed to another unit belonging to the same company, possession and use requirements were fulfilled. The appellant also claimed that availing the balance credit resulted in a revenue-neutral situation, which the Revenue opposed.

Issue 3 - Applicability of possession and use condition:
The judgment analyzed Rule 57AC(2)(b) and Rule 4(2)(b) which require capital goods to be in possession and use of the manufacturer in the same factory for availing balance credit in subsequent financial years. The significance of the word "still" in the provision was highlighted.

Issue 4 - Impact of word "still" in Rule 4(2)(b):
The absence of the word "still" in Rule 4(2)(b) compared to Rule 57AC(2)(b) was deemed inconsequential as the possession and use condition was crucial. The judgment emphasized that the capital goods should remain in possession and use of the manufacturer in the same factory for availing balance credit.

Issue 5 - Requantification of duty demands:
The judgment directed the original authority to requantify the duty demands based on the findings. It noted exceptions for capital goods removed in April 2001 and March 2002, allowing the appellant to claim Cenvat credit on those quantities cleared in March 2002.

In conclusion, the judgment upheld the disallowance of credit for capital goods not in possession and use of the manufacturer in the same factory. It clarified the conditions for availing balance credit under Rule 57AC(2)(b) and Rule 4(2)(b), emphasizing the importance of possession and use. The judgment also highlighted the impact of the word "still" in the provision and directed requantification of duty demands based on the findings.