2007 (2) TMI 71 - AT - Central Excise

Cenvat/Modvat Alleged that appellant had availed all credit in same financial year which is not allowable and accordingly demand for duty and penalty from appellant Held allegation not correct and demand and penalty set aside

Summary

Issues:
Denial of Cenvat credit of 100% on capital goods during the subsequent financial year.

Analysis:
The issue in the present appeal revolved around the denial of Cenvat credit of 100% on capital goods during the subsequent financial year. The appellants, engaged in manufacturing carburetors, had availed Cenvat credit on capital goods amounting to Rs. 1,72,354 in the same financial year. However, a show cause notice was issued for the recovery of excess Cenvat credit of Rs. 86,177. The adjudicating authority confirmed the demand, imposed a penalty, and ordered the confiscation of plant and machinery. The Commissioner (Appeals) upheld the decision, leading to the current appeal.

The relevant rules under consideration were Rule 4(2)(a) and Rule 4(2)(b) of the Cenvat Credit Rules, 2002. Rule 4(2)(a) allowed for the availment of Cenvat credit up to 50% of the CVD paid in the same financial year when the capital goods were received, with a bar on exceeding 50% credit. Rule 4(2)(b) permitted the balance credit to be availed during any subsequent financial year. In this case, the appellant did not avail the Cenvat credit during the first financial year when the capital goods were received but claimed 100% credit in the subsequent financial year, leading to objections from the department.

The Tribunal, citing the case of ACE Timex v. Commissioner of Central Excise, Bangalore, clarified that there was no explicit prohibition on availing more than 50% Cenvat credit in the subsequent financial year. The Tribunal in the referred case allowed the balance 50% credit during the next financial year. The Commissioner (Appeals) misinterpreted this decision and erroneously rejected the appeal, failing to acknowledge that the first 50% credit had already been allowed by the department. Therefore, the impugned order was deemed erroneous, and the appeal was allowed, setting aside penalties, interest, and confiscation of plant and machinery.

In conclusion, the judgment highlighted the importance of adhering to the specific rules governing Cenvat credit availment on capital goods and emphasized the permissibility of claiming the balance credit during subsequent financial years as long as the total credit did not exceed the prescribed limits.